Partially Unwinding Sanctions Moarefy Lawfare

LAWFARE RESEARCH
PAPER SERIES
VOL. 4
JUNE 2016
NO. 2
PARTIALLY UNWINDING SANCTIONS: THE PROBLEMATIC

CONSTRUCT OF SANCTIONS RELIEF IN THE JCPOA
Sahand Moarefy *
By partially unwinding the sanctions regime against Iran, the United States
has sought to achieve two goals: provide Iran some meaningful level of
economic relief such that it carries through with its commitment to scale back
its nuclear program, while preserving the U.S.s architecture of sanctions that
target Iran for non-nuclear reasons. Barring any additional actions by
policymakers, this paper argues that the United States has unwound sanctions
based on legal distinctions that make it unlikely that it can achieve these goals.
The paper concludes by sketching possible solutions for U.S. policymakers.
* Sahand Moarefy is a former investment banker and management consultant. He has

conducted extensive research on sanctions policy, financial regulation, and international
relations and has previously written for the Harvard International Review. He holds a JD
from Harvard Law School, cum laude, and an AB from Harvard College, magna cum laude.
The views expressed in this paper are his own.
LAWFARE RES. PAP. SER.
[Vol. 4:2]
I. INTRODUCTION .........................................................................................2
II. OVERVIEW OF IRAN SANCTIONS REGIME AND THE JCPOA ...........5
A. Legal Background ..................................................................................5
B. Evolution of the Iran Sanctions Regime ................................................7
C. The JCPOA ..........................................................................................13
III. THE JCPOAS PROBLEMATIC CONSTRUCT OF SANCTIONS
RELIEF ........................................................................................................15
A. Assessing How Successfully the U.S. Has Unwound Sanctions .........15
B. The Problematic Construct of Secondary Sanctions Relief .................18
C. The Meaninglessness of Nuclear-Only Sanctions ...............................30
IV. THE PATH FORWARD ..............................................................................38
A. Fixing the JCPOA Without Throwing It AwayFinancial
Remediation .........................................................................................38
B. Looking Beyond the JCPOARationalizing Sanctions .....................42
V. CONCLUSION ............................................................................................44
I. INTRODUCTION
On July 14, 2015, the United States and Iran reached a Joint Comprehensive
Plan of Action (JCPOA) in which the United States for the first time agreed
to lift sanctions on Iran in exchange for constraints on Irans nuclear program.
Unlike prior instances in which the United States has unwound large-scale
sanctions regimes, the United States only committed to lift a limited set of
sanctions and pledged to enforce the vast complex of Iran sanctions not within
the scope of the JCPOA.1
By partially unwinding sanctions, the U.S. sought to achieve two goals: provide
Iran some meaningful level of economic relief such that it carries through with
its commitment to scale back its nuclear program, while preserving its
architecture of sanctions that target Iran for non-nuclear reasons. To what
extent does the structure of the United States sanctions commitment under the
1
The United States has not unwound any other sanctions regime on a similarly piecemeal
basis. The United States maintained sanctions on Vietnam for three decades, but when it
finally removed those sanctions in 1994, it did so by lifting them in their entirety. Similarly,
the United States comprehensively dismantled the sanctions regime against Libya following
the normalization of relations with the country in 2004. The Iraq sanctions regime was
ended a few months after the invasion of Iraq in 2003. Starting in 2012, the U.S. scaled back
its limited sanctions against Burma by issuing general licenses that authorized transactions
with Burmese entities, rather than unwinding certain sets of sanctions while retaining others.
Finally, with respect to Cuba, the United States has only softened regulations limiting travel
and the ability of nonimmigrant Cubans to legally earn salaries in the United States.
Although President Obama called on Congress to lift the Cuban trade embargo in 2016, the
embargo remains in place and none of the sanctions targeting commercial activity have been
lifted.
2016]
PARTIALLY UNWINDING SANCTIONS
JCPOA make this possible? While many have analyzed the impact of the deal
on the Iran sanctions regime, few have even touched on the question.2 This
paper aims to address it head-on. Barring any additional actions by
policymakers, this paper argues that the United States has unwound sanctions
on the basis of legal distinctions that make it highly difficult for it to
simultaneously provide Iran the economic relief it expects under the JCPOA
while leaving the rest of the U.S. sanctions architecture unaffected.
Understanding the structural problems that underlie the United States
sanctions relief package is important not only for what those problems may say
about the viability of the JCPOA, but also because of their implications for
sanctions policy in general. Future targets of sanctions may differ from Iran in
substantial ways, but insofar as future adversaries pose a multiplicity of threats
and policymakers intend to deploy sanctions to counter those threats,
policymakers will have to be able to effectively disentangle sanctions that
address issues that have been worked out without undermining the rest of the
sanctions architecture.
Section I provides an overview of the U.S. sanctions regime against Iran and
summarizes the key terms of the JCPOA, including the legal distinctions
underlying the United States provision of sanctions relief. These are
distinctions based on the target of sanctions (secondary sanctions against
non-U.S. persons which the United States has dismantled and primary
sanctions against U.S. persons which the U.S. plans to continue to enforce) and
the rationale of sanctions (nuclear-related sanctions with which the JCPOA
does away and non-nuclear sanctions which are to remain in place).
Altogether, the U.S. removes only those sanctions which were imposed as a
2
Commentators have mostly focused on the implications of the United States removal of a
particular set of sanctions, or the continued application of a particular limitation on business
activity with Iran (such as the prohibition on dollar-clearing transactions has garnered
substantial attention). See Omar Bashir and Eric Lorber, Unfreezing Iran After the Moderate
Win, Foreign Affairs (Mar. 1, 2016), https://www.foreignaffairs.com /articles/iran/2016-0301/unfreezing-iran; Aaron Arnold, The Real Threat to the Iran Deal: Tehran's Banking
System, The Diplomat (Mar. 22, 2016), http://thediplomat.com/2016/03/the-real-threat-tothe-iran-deal-tehrans-banking-system/. Those who have more holistically analyzed the
impact of sanctions relief have tended to come from a more partisan perspective, with critics
of the deal stressing that the JCPOA provides too much sanctions relief and deal supporters
expressing concern that the United States is not doing enough to give Iran the sanctions
relief to which it is entitled. See Jonathan Schanzer and Mark Dubowitz, It Just Got Easier
for Iran to Fund Terrorism, Foreign Policy (July 17, 2015),
https://foreignpolicy.com/2015/07/17/it-just-got-easier-for-iran-to-fund-terrorism-swiftbank/?utm_content=buffer9cd0b&utm_mediu; Tyler Cullis, Obama Administration
Puttering on Sanctions Relief Risks Derailing Iran Accord, The Huffington Post (Mar. 31,
2016), http://www.huffingtonpost.com /tyler-cullis/obama-administrationputt_b_9583002.html. Neither critics nor proponents of the JCPOA have dealt substantially
with how the United States has structured its commitment to partially unwind sanctions.
[Vol. 4:2]
result of Irans pursuit of nuclear weapons and which discourage non-U.S.

companies from engaging in business with Iran. Sanctions targeting U.S.
companies as well as non-nuclear sanctions are to continue in full force.
Section II examines how each of these distinctions problematize the process of
unwinding sanctions. By only unwinding secondary sanctions, the JCPOA
disregards the extent to which the reluctance of non-U.S. companies to transact
with Iran arises from primary sanctions and other non-secondary measures.
In doing so, the JCPOA gives rise to two alternative, but equally problematic
outcomes(1) one in which these measures continue to dissuade foreign
companies from engaging in business in Iran, thereby eliminating the
possibility of meaningful economic relief for Iran, and (2) another where nonU.S. companies reenter the Iranian market despite these measures and in so
doing render the surviving U.S. sanctions against Iran less forceful and
effective. In addition, the distinction between nuclear and non-nuclear
sanctions falls short as an organizing principle for lifting sanctions. Among the
legal authorities under which the U.S. has enacted sanctions against Iran, none
within the purview of the JCPOA exclusively reference Irans nuclear program
as a rationale. As a result, the United States provides sanctions relief that is
inherently overinclusive.
Section III discusses the path forward. In the short- to medium-term, this
section argues that the United States should propose a financial remediation
program whereby Iranian banks are given the opportunity to verifiably
demonstrate the integrity of their businesses through a system of international
inspections. By offering such a program, the United States can start shifting
the conversation around the JCPOAs commitment to economic normalization
from one focused on whether the U.S. has given enough sanctions relief to one
where economic relief is understood to be contingent on Iran proving the
integrity of its financial sector to the international banking community. Iran,
not the United States, must assume the burden of proof. This section also
discusses what the JCPOA can teach policymakers about devising sanctions
regimes that are easier to unwind on a piecemeal basis. As a starting point,
policymakers can rationalize sanctions by predicating them in terms of
precisely defined policy grounds that focus on specific categories of business
activity.
2016]
II. OVERVIEW OF IRAN SANCTIONS REGIME AND THE JCPOA

A. Legal Background
The United States government has sanctioned Iran primarily through three legal
mechanismscongressional statutes, executive orders, and OFAC regulations
and designations.3
Congressional statutes call on the President to impose specific types of
sanctions or, more frequently, list a menu of possible sanctions from which
the President can pick and choose. Statutory sanctions take the form of standalone statutes specifically aimed at Iran, like the Iran Freedom Support Act
(IFCA) and Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010 (CISADA), while others are included as part of the annual
defense budget through the National Defense Authorization Act and defense
appropriations bills. To permanently unwind these sanctions, Congress must
generally take affirmative action. However, sanctions under some statutes, like
CISADA, cease to be effective when the President removes Irans designation
as a state sponsor of terror (discussed below). Almost all statutory sanctions
provide the President authority to temporarily waive sanctions under certain
conditions, which typically include a determination by the President that such a
waiver is in the national interest.
The President has also imposed sanctions through executive orders. The
President has issued these executive orders based on specific statutory
authorities empowering the President to sanction Iran and two general statutory
authorities, the International Emergency Economic Powers Act (IEEPA) and
National Emergencies Act (NEA), both of which authorize the President to
impose sanctions in the event of national emergencies. 4 The orders define
the characteristics for designation of the targets of the economic sanctions and
delegate authority for their implementation. In most cases, this administrative
and enforcement authority has been delegated to the Secretary of the Treasury,
acting in consultation with the Secretary of State and other specified cabinet
officials.5
3
40 statesincluding New York and Californiahave enacted Iran divestment statutes that
preclude government and public entities from transacting with companies that do business in
Iran. In light of the limited scope of these sanctions and federal courts relatively consistent
track record in striking down state sanctions that contravene federal foreign policy
objectives, this paper does not analyze these statutes in depth. See Tyler Cullis, Assessing
the Fate of State Sanctions on Iran, SanctionLaw (Sept. 4, 2015),
http://sanctionlaw.com/assessing-the-fate-of-state-sanctions-on-iran/; see also Crosby v.
National Foreign Trade Council, 530 U.S. 363 (2000).
4
Kay C. Georgi and Paul M. Lalonde, Handbook of Export Controls and Economic
Sanctions 5 (2013).
5
Ibid.
[Vol. 4:2]
The Secretary of the Treasury has generally delegated administrative and

enforcement authority to the Office of Foreign Assets Control (OFAC)
within the Treasury Department.6 OFAC administers Iran sanctions through
two sets of implementing regulationsthe Iranian Transactions and Sanctions
Regulations (ITSR) and the Iranian Financial Sanctions Regulations
(IFSR).7 The ITSR implements the trade and transaction sanctions and
prohibitions concerning Iran and its government, while the IFSR imposes
restriction on certain activities by U.S. financial institutions non-U.S.
subsidiaries and implements secondary economic sanctions against non-U.S.
financial institutions.8 OFAC has also identified and added economic sanctions
targets to the Specially Designated Nationals and Blocked Persons List (SDN
List). OFAC prohibits U.S. persons from taking part in most commercial
transactions with SDNs. The SDN list also serves as notice to U.S. persons of
their obligation to block any property or interests in property belonging to
blocked persons that may come into their possession. Violations can result in
both civil and criminal penalties.
Unlike statutory sanctions, the President can usually unilaterally revoke,
modify, or supersede his own executive orders or those issued by a predecessor
at any time and without explanation. 9 This power also applies to any authority
delegated by the President to the Secretary of Treasury or other cabinet
officials. However, Congress can curtail the Presidents authority to unwind
executive orders. For instance, Congress can codify sanctions previously
imposed under executive orders and attach waiver conditions. In addition, to
the extent that the President has issued executive orders to implement sanctions
mandated by statutes specifically targeting Iran, any actions by the President to
cease applying those sanctions (including altering executive orders) will have
to comply with waiver conditions delineated by the underlying statutes. This
same hurdle is absent in cases where the President has imposed sanctions
exclusively under the authority of IEEPA and NEA as both statutes empower
the President to revoke or modify executive orders based on their authority.10
The U.S. government has sanctioned Iran in two other ways that do not neatly
fit into the abovementioned categories, but are still worth addressing. First, the
Secretary of State, pursuant to his authorities and responsibilities under Section
6(j) of the Export Administration Act of 1979, has designated Iran as a state
sponsor of acts of international terrorism. Based off of this designation, various
Ibid.
Ibid., 246.
8
Ibid.
9
Dianne E. Rennack, Iran: U.S. Economic Sanctions and the Authority to Lift Restrictions,
Congressional Research Service, 7 (Jan. 22, 2016),
https://fas.org/sgp/crs/mideast/R43311.pdf.
10
Ibid.
7
2016]
statutes prohibit foreign aid, financing, and trade to Iran.11 Generally speaking,
the President can remove Irans designation by certifying to Congress that Iran
no longer supports acts of terrorism.12
Second, the Financial Crimes Enforcement Network (FinCEN), housed
within the Treasury Department, has designated Iran as a jurisdiction of
primary money laundering concern. FinCEN has made this declaration based
on authority delegated to it by the Secretary of the Treasury under section
5318A of the Patriot Act.13 Pursuant to this section, FinCEN has required
domestic financial institutions and financial agencies to take certain special
measures to guard against the possibility of facilitating business activity
involving Iran. While FinCEN emphasizes that it will consider removing an
entitys designation as a primary laundering concern in the event that it
sufficiently rehabilitates its practices, Congress has codified Irans designation
for purposes of section 5318A in the National Defense Authorization Act in
2012.14
B. Evolution of the Iran Sanctions Regime
How these various sanctions against Iran relate to one another can be best
understood in light of the context in which they were imposed.
1979 TO 2005
11
Ibid.
The President has authority to remove Irans designation under three laws, which form the
terrorist list 620A, Foreign Assistance Act of 1961, 40, Arms Export Control Act,
and Export Administration Act of 1979. 22 U.S.C. 2371, 22 U.S.C. 2780, 50 U.S.C. app.
2405(j). While these laws lay out somewhat different procedures for delisting, they
generally require the President to certify that Iran no longer supports acts of terrorism.
Rennack, Iran: U.S. Economic Sanctions, 6. Alternatively, the President can rescind Irans
terrorism designation for short periods of time under more flexible conditions. Ibid. The
President can rescind the designation for 45 days if the President certifies that Iran has not
supported acts of terrorism in the preceding six months and that Iran has assured the U.S.
that it will not support terrorism in the future; in the case of foreign aid, the President is also
authorized to provide aid despite the terrorism designation if he finds that national security
interests or humanitarian reasons justify doing so and notifies Congress 15 days in advance.
Ibid.
13
Press Release, U.S. Dept of Treasury, Finding that the Islamic Republic of Iran is a
Jurisdiction of Primary Money Laundering Concern (Nov. 25, 2011),
https://www.treasury.gov/press-center/press-releases/Documents/Iran311Finding.pdf.
14
That being said, Section 5318A of the Patriot Act simply authorizes the Treasury
Department to take special measures in light of a determination that an entity is a primary
money laundering concern; accordingly, Congresss codification of this designation does not
alter FinCENs discretion to cease applying special measures. 31 U.S.C. 5318A
12
[Vol. 4:2]
The U.S. government first imposed sanctions against Iran following the 1979
Islamic revolution.15 In response to the takeover of the U.S. Embassy in
Tehran, President Carter imposed a ban on Iranian oil imports, followed by
Executive Order 12170, in which the President declared a national
emergency and blocked all $12 billion in Iranian government assets in the
United States.16 President Reagan renewed the sanctions effort in 1984 when
he designated Iran as a state sponsor of terror after Iran-sponsored Hezbollah
killed 241 U.S. marines in Beirut, Lebanon.17 Three years later, President
Reagan banned all U.S. imports from Iran, including oil, following altercations
between U.S. and Iranian vessels in the Persian Gulf.18
The 1990s saw an escalation in sanctions in light of continued anxiety about
Irans support of terrorism along with new concerns regarding Irans pursuit of
weapons of mass destruction.19 In October 1992, Congress passed the Iran-Iraq
Arms Non-Proliferation Act, which prohibited the transfer of goods or
technology related to WMDs and certain types of advanced conventional
weapons. And in 1994, President Clinton issued Executive Order 12938,
which imposed export controls on sensitive WMD technology. A year later,
President Clinton further ratcheted up sanctions, barring all trade and
investment with Iran under Executive Orders 12957, 12959, and 13059. 20
In 1996, Congress passed the Iran and Libya Sanctions Act, later retitled the
Iran Sanctions Act (ISA).21 The ISA imposed sanctions on any firm that
invested in Irans energy sector above a certain monetary threshold, marking
the first instance in which the United States imposed secondary sanctions
against Iran. If companies chose to do business with Irans energy sector, they
15
Patrick Clawson, U.S. Sanctions, United States Institute of Peace: The Iran Primer, 2
(Aug. 2015),
http://iranprimer.usip.org/sites/iranprimer.usip.org/files/PDF%20Sanctions_Clawson_US.pd
f
16
In April 1980, President Carter issued Executive Orders 12205 and 12211, which imposed
an embargo on U.S. trade with Iran and on travel to Iran. See Exec. Order No. 12,170; Exec.
Order No. 12,205; Exec. Order No. 12,211. As part of the January 1981 Algiers Accords
between the United States and Iran, the President revoked Executive Orders 12205 and
12211 and released Iranian assets frozen pursuant to Executive Order 12170. Clawson, U.S.
Sanctions, 2.
17
Ibid.
18
Clawson, U.S. Sanctions, 2 (Aug. 2015); Exec. Order No. 12,613.
19
Sanctions Against Iran, 3.
20
In March, President Clinton prohibited all U.S. participation in Iranian petroleum
development under Executive Order 12957. President Clinton then broadened the scope of
sanctions in May, announcing Executive Order 12959, which imposed a complete trade and
investment embargo on Iran. In 1997, President Clinton issued Executive Order 13059 to
further clarify the steps taken in these orders.
21
Iran and Libya Sanctions Act of 1996, Pub. L. No. 104172, 110 Stat. 1541.
2016]
could not also do business with the United States.22 Congress also enacted
sanctions against Iran in the early 2000s, passing the Iran Nonproliferation Act
(INA) in 2000 and the Iran Nuclear Proliferation Prevention Act (INPPA)
in 2002. The INA authorized the President to impose sanctions on foreign
persons who had engaged in transactions involving Irans WMD programs. 23
The INPPA required the U.S. representative to the International Atomic Energy
Agency (IAEA) to oppose programs that were inconsistent with nuclear
nonproliferation and safety goals of the United States.24
2006 TO 2008
Sanctions intensified starting in 2006, when nuclear negotiations collapsed and
the IAEA formally found Iran to be in noncompliance with its obligations and
referred Iran to the UN Security Council. 25 Along with the United Nations and
European Union, which began imposing sanctions of their own, Congress
passed the Iran Freedom Support Act (IFSA) that September. The IFSA
codified the trade and investment embargo imposed under President Clintons
Executive Orders 12957, 12959, and 13059.26 In addition, President Bush
issued Executive Order 13438 in July 2007, which blocked the property of
Iranian individuals and entities determined to have threatened stabilization
efforts in Iraq.27
At the same time, the U.S. governmentwith the Treasury Department at the
forefrontmounted a campaign aimed specifically at Irans financial services
sector. Starting in 2006, Treasury officials directly reached out to banks across
the world in a concerted effort to persuade them to cut off ties with Iranian
banks.28 The Treasurys argument boiled down to making clear to banks the
core risk of doing business in Iranin the words of Treasury official Danny
Glaser, that in any business involving Iran you cannot be certain that the party
with whom you are dealing is not connected to some form of illicit activity.29
22
European countries, however, viewed these sanctions as extraterritorial, and the

European Union threatened to mount a challenge in the World Trade Organization. The U.S.
government relented and waived the energy sanctions in exchange for European
commitments to cooperate more vigorously in countering Irans development of WMDs.
Sanctions Against Iran, 3. In the late 2000s, the United States started re-enforcing (and
further strengthening) secondary sanctions under the ISA following the collapse of nuclear
negotiations with Iran.
23
Rennack, Iran: U.S. Economic Sanctions, 6.
24
Ibid.
25
Ibid.
26
Iran Freedom Support Act of 2006, Pub. L. No. 109293, 120 Stat. 1344.
27
Exec. Order No. 13,438.
28
Juan Zarate, Treasurys War: The Unleashing of a New Era of Financial Warfare 298
(2013).
29
Between Feckless and Reckless: U.S. Policy Options to Prevent a Nuclear Iran: Joint
Hearing Before the Subcomm on the Middle East and South Asia, and the Subcomm. on
10
[Vol. 4:2]
To the extent that the core risk of doing Iranian business materialized,
foreign financial institutions would find themselves wrapped up in a sanctioned
transaction that would subject them to hefty U.S. regulatory penalties and
reputational harm in the international financial marketplace.30 The Treasury
Department paired private sector outreach with more aggressive use of its
authority under Executive Order 13224 (passed following the attacks of 9/11)
to designate terrorist financiers. From 2006 to 2008, the Treasury Department
designated 13 Iranian banks and two non-Iranian banks that it determined had
facilitated Irans proliferation activities.
Finally, in November 2008, the Treasury department revoked authorization for
U-turn transfers involving Iran. With this authority, U.S. banks had been able
to process dollar transactions for Iranian entities simply for the purposes of
clearing those transactions; without it, foreign banks doing business with Iran
were effectively unable to facilitate any Iran-related transactions in dollars.31
By the end of 2008, over eighty banks around the world had curtailed their Iran
businesses.32 What is important to note regarding Treasurys financial
campaign is that it not only utilized the legal authority of designations and the
threat of regulatory penalties to dissuade foreign banks from transacting with
Iranian banks; Treasury also elevated the risk assessment of foreign financial
institutions looking to do business in Iran by identifying specific risks
underlying Iranian transactions that could compromise the integrity of banks
financial controls. This is a point to which this paper will return in Sections II
and III.
In addition, as Treasurys campaign against Irans financial services sector
escalated, other government actors entered the fray. Various U.S. authorities
began aggressively pursuing foreign banks that had violated sanctions,
imposing nine-figure fines and in certain instances limiting banks access to
U.S. markets. Frequently, these punishments were imposed as part of deferred
prosecution agreements, characterized by one commentator as agreements
pursuant to which corporate defendants pay fines, dont dispute what theyve
done wrong, and promise to reformall with the threat looming of a potential
future criminal indictment if they dont follow through on their promise to
reform.33
Terrorism, Nonproliferation and Trade of the H. Comm. on Foreign Affairs, 110th Cong. 24
(2008) (statement of Daniel Glaser, Deputy Assistant Secretary for Terrorist Financing and
Financial Crimes, U.S. Dept of Treasury), http://archives.republicans.foreignaffairs.gov/11
0/41849.pdf.
30
Orde F. Kittrie, Lawfare: Law as a Weapon of War 104 (2016).
31
Zarate, Treasurys War, 308.
32
Robin Wright, Stuart Leveys War, N.Y. Times (Oct. 31, 2008)
33
Paul M. Barrett, Can Banks Be Held Liable for Terrorism?, Bloomberg Businessweek
(Mar. 18, 2015)
2016]
11
The Treasury Department also applied the principles of its campaign of

financial isolation to other sectors of Irans economy.34 In late 2008, Treasury
designated Irans main shipping line and Irans national oil company, the
Islamic Republic of Iran Shipping Lines and National Iranian Oil Company
(NIOC), under Executive Order 13382. 35 Another post-9/11 Executive
Order, Executive Order 13382 empowers the Treasury Department to block the
property of WMD proliferators and supporters.36 Treasury officials also
directly reached out to insurance companies, highlighting the need for
insurance executives to be suspicious of what was being insured for Iran as
well as the importance of applying additional due diligence.37
While not as active as the Treasury Department, the State Department also
began to use its authority under Executive Order 13382 to designate several
significant Iranian entities. In March 2007, the State Department designated
the Defense Industries Organization of Iran as part of the United States
implementation of United Nations Security Council Resolution 1737.38 In
October 2007, State designated the Islamic Revolutionary Guard Corps
(IRGC), Irans most powerful military organization and a major player in
Irans economy.39
2009 TO 2012
The sanctions effort went through a short hiatus in 2009 when the new
Presidential administration of Barack Obama tried to renew negotiations with
Iran regarding its nuclear program.40 When these overtures failed, the effort reintensified. The Treasury Department stepped up its financial campaign
against Iran, designating additional Iranian banks in 2010. 41 A year later,
Treasury designated the Central Bank of Iran along with the entire Iranian
banking sector as a primary money laundering concern under Section 311 of
the Patriot Act. 42
34
Zarate, Treasurys War, 312.

Press Release, U.S. Dept of Treasury, Major Iranian Shipping Company Designated for
Proliferation Activity (Sept. 10, 2008), https://www.treasury.gov/press-center/pressreleases/Pages/hp1130.aspx.
36
37
Zarate, Treasurys War 306.
38
Ibid.
39
Press Release, U.S. Dept of State, Designation of Iranian Entities and Individuals for
Proliferation Activities and Support for Terrorism (Oct. 25, 2007), http://20012009.state.gov/r/pa/prs/ps/2007/oct/94193.htm
40
41
Ibid., 332.
42
Press Release, U.S. Dept of Treasury, Finding that the Islamic Republic of Iran is a
Jurisdiction.
35
12
[Vol. 4:2]
The Department of Justice and state regulators also escalated the campaign of
enforcement actions against foreign banks with business operations involving
Iran. Among the most notable cases were London-based Standard Chartereds
$340 million settlement with the New York Department of Financial Services
in 2012 (plus an additional $300 million penalty and restrictions on its U.S.
business operations for not remediating anti-money laundering compliance
problems in 2013) and the French banking giant BNP Paribass $8.97 billion
settlement with the U.S. government, along with the suspensions of the banks
New York dollar-clearing operations for one year.
Congress also played a more active role. From 2010 to 2012, Congress passed
four statutes mandating the imposition of sanctions against Iran and entities
transacting with Iran, which the President implemented in a series of Executive
Orders. Collectively, these statutes expanded the scope of secondary sanctions
against Iran and codified Executive Branch designations of Iranian entities.
Starting with the Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 (CISADA), Congress toughened up ISA sanctions,
imposed secondary sanctions on foreign banks who transacted with the IRGC
and facilitated WMD or terrorism-related transactions involving designated
Iranian banks, and sanctioned Iranian individuals involved in the crackdown
surrounding the 2009 Presidential election.43 In December 2011, Congress
included Iran sanctions in the National Defense Authorization Act for the
Fiscal Year 2012 (NDAA 2012). The statute codified the designation of Iran
as a country of primary money laundering concern and imposed outright
secondary sanctions on foreign banks engaged in any type of business with the
Central Bank of Iran or other designated Iranian financial institution. 44 The
next month, Congress passed the Iran Threat Reduction and Syria Human
Rights Act (ITRSHRA), which further ratcheted up ISA sanctions and
imposed secondary sanctions on foreign companies who provided shipping
services to transport goods related to proliferation and terrorism or supplied
underwriting services to NIOC or the National Iranian Tanker Company
(NITC).45 In addition, the ITRSHRA imposed liability on U.S. parent
companies for the actions of their foreign subsidiaries and called on the
Treasury Department to determine whether NIOC and NITC were IRGC
affiliates (and thus subject to CISADAs sanctions on the IRGC). In
September 2012, the Treasury submitted a report to Congress in which it
43
Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, Pub. L. No.
111195, 124 Stat. 1312.
44
National Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 11281, 125 Stat.
1298.
45
Iran Threat Reduction and Syria Human Rights Act of 2012, Pub. L. No. 112158, 126
Stat. 1214.
2016]
13
determined that NIOC and NITC were in fact IRGC affiliates.46 Finally, in
December 2012, Congress passed the Iran Freedom and Counter-Proliferation
Act of 2012 (IFCA) as a subtitle to that years National Defense
Authorization Act. The IFCA markedly expanded the breath of secondary
sanctions to include all business activities involving Irans energy, shipping,
and shipbuilding sectors, sales of industrial materials from Iran, and the
provision of underwriting services to Iranian entities already sanctioned under
other legal authorities. 47
The U.S. was not alone in imposing new, tougher sanctions on Iran. In June
2010, the United Nations Security Council approved Resolution 1929, which
built on the three Iran sanctions resolutions passed during the Bush
administration.48 The European Union also put in place aggressive measures,
banning all Iranian oil imports in 2011 and designating over one hundred
entities for their involvement in Iranian proliferation activities. 49 Even
governments that were usually not amenable to Western financial pressure
began to bar transactions involving Iran in light of the difficulties U.S. and
European sanctions created for businesses within their jurisdiction to reliably
transact with Iranian entities. For example, in January 2011, Indias central
bank prohibited local companies from doing business with the Tehran-based
Asian Clearing Union, an exporter of Iranian oil, [i]n view of the difficulties
being experienced by importers/exporters in payments to/receipts from Iran. 50
C. The JCPOA
BACKGROUND
In March 2013, the United States and Iran began a series of secret bilateral
talks regarding Irans nuclear program. Full-scale negotiations restarted after
the election of President Hassan Rouhani in June 2013, which included Iran
and the U.N.s five permanent members (China, France, Russia, the United
States, and the United Kingdom) plus Germany (the P5+1). On November
24, 2013, the parties agreed to an interim agreement, followed by a framework
agreement in April 2015. The parties struck a final agreement on July 15,
2015. Pursuant to the JCPOA, Iran agreed to restrictions on its nuclear
program in exchange for sanctions relief from the P5+1.
46
Press Release, U.S. Dept of Treasury, Treasury Submits Report To Congress On NIOC
And NITC (Sept. 24, 2012), https://www.treasury.gov/press-center/pressreleases/Pages/tg1718.aspx.
47
National Defense Authorization Act for Fiscal Year 2013, Pub. L. No. 112239, 126 Stat.
1632.
48
49
Ibid.
50
Ladane Nasseri, Iran Exchange to Start Fuel-Oil Trading in April, Official Says,
Bloomberg (Apr. 1, 2011), http://www.bloomberg.com/news/articles/2011-04-01/iranexchange-to-start-fuel-oil-trading-in-april-official-says.
14
[Vol. 4:2]
SANCTIONS COMMITMENTS OF THE P5+1

In general, the P5+1 committed to lift all United Nations Security Council
sanctions as well as all multilateral and national sanctions related to Irans
nuclear program.51 With the exception of the United States, this amounted to
an unwinding of most of the Iran sanctions put in place by the members of the
P5+1. The seven United Nation Security Council resolutions lifted by the
JCPOA represent all of the U.N. resolutions imposing sanctions against Iran.
Accordingly, China and Russia completely dismantled their Iran sanctions
regimes as they had only implemented those sanctions that were mandated by
the U.N. Security Council. Most of the European Unions sanctions against
Iran also piggybacked off of U.N. Security Council resolutions. As a result, the
few Iran sanctions retained by the E.U. following the implementation of the
JCPOAthe embargo on sales to Iran of arms, missile technology, other
proliferation-sensitive items, and gear for internal repressionare largely
insignificant from a commercial standpoint .52
The United States took on a more limited approach to sanctions unwinding
based on two distinctions. First, the United States promised to only lift
secondary sanctionsthat is, sanctions that seek to discourage non U.S.
parties from doing business with Iran under threat of being denied access to the
United States marketas opposed to primary sanctions prohibiting economic
activity involving U.S. persons or goods.53 This means that all sanctions lifted
by the JCPOA continue to apply in full force to U.S. persons, with the
exception of three narrow categories of business activity.54 In other words, the
general trade and investment embargo imposed under E.O. 12959 and codified
in the IFSA continues to prohibit U.S. persons from transacting with Iranian
entities.
Second, the United States committed to only lift nuclear-related sanctions on
non-U.S. persons. Rather than refer to the legal rationale underlying a
particular set of sanctions (a subject discussed later in this paper), these
sanctions primarily encompass measures taken by the U.S. government
51
Joint Comprehensive Plan of Action, Preface, Jul. 14, 2015.

Kenneth Katzman, Iran Sanctions, Congressional Research Service, 41 (Mar. 23, 2016),
https://www.fas.org/sgp/crs/mideast/RS20871.pdf
53
Joint Comprehensive Plan of Action, Ann. II, art. B, n.6.
54
The U.S. government has committed to license three narrow categories of transactions
between the U.S. and Iran. These are the sale of commercial passenger aircraft and related
parts and services to Iran, the importation into the United States of Iranian-origin carpets and
foodstuffs, including pistachios and caviar, and activities that are consistent with the JCPOA
by non-U.S. entities that are owned or controlled by a U.S. person. See Ibid,, Ann. II, art. B,
sec. 12-13; see also Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to
the Joint Comprehensive Plan of Action on Implementation Day, U.S. Dept of Treasury and
U.S. Dept of State, 2 (Jan. 16, 2016), https://www.treasury.gov/resourcecenter/sanctions/Programs/Documents/implement_guide_jcpoa.pdf
52
2016]
15
following the collapse of nuclear talks with Iran in the mid-2000s.

Accordingly, the U.S. has removed 385 Iranian individuals and entities from
the SDN list, decreasing the number of Iranian SDNs by approximately twothirds.55 This includes 13 Iranian financial institutions, such as the Central
Bank of Iran and Bank Melli, as well as NIOC, NITC, and IRISL. In addition,
the U.S. government committed to cease applying the broad secondary
sanctions mandated under the IFCA, ITRSHRA, NDAA 2012, and section 5 of
the ISA (which includes the amendments to the statute under the ITRSHRA
and CISADA). On January 16, 2016, the President implemented this step by
exercising his waiver authority under these statutes (which allow him to waive
sanctions when doing so in the national interest) and revoking the executive
orders implementing sanctions.
In summary, to the extent that they do not transact with the entities designated
in the SDN list (a much shorter list post-JCPOA) foreign companies are no
longer prohibited from engaging in most types of business activities involving
Iran. These include transactions with Iranian banks and the Central Bank of
Iran, such as the use of financial messaging services by Iranian entities; the
provision of underwriting services and insurance; transactions involving Irans
energy sector; transactions with Irans shipping and shipbuilding sectors and
port operators; trade in gold and other previous metals; trade in graphite, raw or
semi-finished metals and software for integrating industrial processes; sale of
goods and services used in Irans automotive sector; and the acquisition of
nuclear-related commodities and services for nuclear activities contemplated in
the JCPOA.56
III. THE JCPOAS PROBLEMATIC CONSTRUCT OF SANCTIONS
RELIEF
A. Assessing How Successfully the U.S. Has Unwound Sanctions
To determine how successfully the U.S. has unwound sanctions, we must first
define what we mean by success. One component of success is enabling Iran
to enjoy some meaningful level of economic relief such that it would be
incentivized to carry through with its obligations under the JCPOA. Various
factors drove Iran to agree to a deal, but it is generally accepted that the
possibility of relief from the crippling sanctions of the 2000s (using the
words of a former adviser to Irans nuclear negotiating team) played the
decisive role in bringing Iran to the negotiating table.57 Although studies
definitively showing a causal relationship between sanctions and Iranian
55
Ibid,, Ann. II, attach. 3.

Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to the Joint
Comprehensive Plan of Action on Implementation Day, U.S. Dept of Treasury and U.S.
Dept of State, 2.
57
Nader Entessar and Kaveh L. Afrasiabi, Iran Nuclear Negotiations: Accord and Dtente
Since the Geneva Agreement of 2013 85 (2015).
56
16
[Vol. 4:2]
economic activity are hard to find, the few that exist show that, by the early
2010s, sanctions had effectively isolated Iran from international markets. From
2011 to 2013, Irans crude oil exports fell from about 2.5 million barrels per
day to about 1.1 million barrels, an approximately 60% decrease.58 Irans
economy also shrank by 9% from 2012 to 2014, before stabilizing in 2015 as a
result of modest sanctions relief under the interim nuclear agreement that went
into effect on January 20, 2014.59
Iranians particularly wanted relief from the aggressive financial sector
sanctions that disconnected Irans banking sector from the international
financial system. By the end of 2008, over eighty banks around the world had
shut down their Iran businesses. Four years later, sanctions had made
inaccessible about $120 billion in Iranian reserves held in banks abroad and the
central banks reserves were depleted, having declined to the tune of $110
billion.60 Irans currency, the rial, also suffered in the face of greater
restrictions on banking transactions with Iran, falling by about 80% from 2010
to the summer of 2012.61 Iranian leaders, often prone to downplaying the
effects of sanctions in the media, publicly acknowledged the devastating
impact of sanctions on Iranian banks, with President Ahmadinejad noting at
one point that [o]ur banks cannot make international transactions anymore.62
That the Iranians signed onto the JCPOA with the expectation that sanctions
relief would translate into meaningful economic relief is underscored by
paragraphs 29 and viii of the JCPOA. While the U.S. government has
specifically identified the sanctions that it has committed to remove under the
JCPOA, paragraph 29 of the JCPOA also states:
The EU and its Member States and the United States, consistent with
their respective laws, will refrain from any policy specifically intended
to directly and adversely affect the normalisation of trade and
economic relations with Iran inconsistent with their commitments not
to undermine the successful implementation of this JCPOA.63
In addition, paragraph viii of the Preamble notes:
The [P5+1] and Iran commit to implement this JCPOA in good faith
and in a constructive atmosphere, based on mutual respect, and to
58
Katzman, Iran Sanctions, 2.

Ibid.
60
Ibid.
61
Ibid.
62
Iran's rial hits an all-time-low against the US dollar, BBC News (Oct. 1, 2012),
http://www.bbc.com/news/business-19786662
63
Joint Comprehensive Plan of Action, Preamble, para. 29.
59
2016]
17
refrain from any action inconsistent with the letter, spirit and intent of
this JCPOA that would undermine its successful implementation.64
How broadly or narrowly one should read these commitments is an open
question, but the presence of this general language at a minimum demonstrates
that Iran does not see the United States end of the bargain as simply limited to
dismantling specific legal authorities under which sanctions have been
promulgated. Instead, sanctions relief is intended to provide a baseline level of
economic normalization that the United States is prohibited from undercutting
by engaging in actions that violate the spirit and intent of the JPCOA.65
At the same time, the U.S. government intends to continue vigorously
enforcing sanctions that are not covered by the JCPOA. Over the past four
decades, the United States has put in place a wide-ranging number of sanctions
against Iran, many of which have been imposed for reasons unrelated to Irans
nuclear program. Accordingly, one must also assess the success of the United
States sanctions commitment by evaluating the extent to which that
commitment does not detract from the efficacy of the rest of the United States
Iran sanctions regime. Indeed, the White House has pitched the JCPOA to
lawmakers and the public by stressing the partial nature of sanctions relief,
64
Ibid., Preamble, para. viii.

To be sure, it would not seem sensible to give the limitations in these paragraphs their full
breadth. Any U.S. sanction against Iran can arguably be characterized as having an adverse
impact with the potential of undermining the success of the JCPOA and all parties know that
the U.S. will continue to maintain and enforce primary sanctions against Iran, which will
prevent full economic normalization. Indeed, the JCPOA specifically refers to measures that
have an adverse impact on normalization in a manner inconsistent with the parties
commitments not to undermine the successful implementation of this JCPOA, which
suggests that only measures that go against P5+1s specifically delineated sanctions
commitments are prohibited. Thus, in January this year, Treasury designated 11 entities for
their involvement in Irans ballistic missiles program without scuttling the implementation
of the JCPOA. Press Release, U.S. Dept of Treasury, Treasury Sanctions Those Involved in
Ballistic Missile Procurement for Iran (Jan. 17, 2016), https://www.treasury.gov/presscenter/press-releases/Pages/jl0322.aspx. At the same time, an excessively narrow reading
for example, that the P5+1 has committed only to avoid re-imposing sanctions specifically
dismantled under the JCPOAis difficult to swallow given that the JCPOA explicitly brings
to bear the broader concepts of normalization of trade and economic relations and the
spirit of this JCPOA as opposed to employing narrower language (for example, that the
P5+1 has committed to not re-impose the sanctions specifically identified as inapplicable
under the JCPOA.) Furthermore, it would be hard to imagine what incentive Iran would
have to comply with its nuclear-related obligations under the JCPOA were the United States
or its allies to initiate a new wave of sanctions devastating Irans economy, even if those
sanctions had nothing to do with Irans nuclear program. Thus, while it is unreasonable to
read the JCPOA as prohibiting the United States from continuing already-existing sanctions
against Iran or imposing new sanctions against Iran, the parties commitment regarding the
normalization of economic relations suggests that the United States has at least agreed to a
minimum level of restraint and that the parties assume some basic amount of economic
normalization coming out of the JCPOA.
65
18
[Vol. 4:2]
highlighting how it has gone about differentiating between the sanctions it has
unwound and those that it has preserved. Thus, an unnamed administration
official began the first conference call with reporters regarding the JCPOA by
emphasizing that the U.S. would continue to enforce primary sanctions. Let
me be clear about what we will not be relieving, the official stressed, [w]e
are not removing our trade embargo on Iran. U.S. persons and banks will still
be generally prohibited from all dealings with Iranian companies, including
investing in Iran, facilitating cleared country trade with Iran.66 Similarly, the
White House, in a memorandum on the JCPOA published the day after the
signing of the deal, insisted from the outset that we will offer relief only from
nuclear-related sanctions and that we will be keeping in place other unilateral
sanctions that relate to non-nuclear issues, such as support for terrorism and
human rights abuses.67 In light of these assurances, the United States can only
succeed in effectuating sanctions relief under the JCPOA if it does not
compromise the effectiveness of its other sanctions against Iran.
B. The Problematic Construct of Secondary Sanctions Relief
Under this rubric of success, the United States differentiation between primary
and secondary sanctions falls short. For this distinction to work as an
organizing principle for lifting sanctions, non-U.S. companies will have to
renew their commercial ties with Iran on some material level (thereby
providing the Iranians the economic relief they anticipate) without detracting
from the rest of the U.S. sanctions regime. These outcomes are unlikely to
occur simultaneously. This can be illustrated most simplistically as a
conceptual matter: if Iran manages to renew commercial relationships with
foreign businesses, it will by definition have less incentive and need to develop
commercial relations with the United States, thereby taking away from the bite
of U.S. primary sanctions.
More fundamentally, however, the JCPOA misses two things. First, in
assuming that secondary sanctions relief will push foreign businesses to reenter
the Iranian market and that the primary sanctions regime will remain
unaffected, the United States does not take into account the fact that primary
sanctions also target the U.S. operations of foreign-based entities and that much
of their efficacy derives from this scope. Indeed, the JCPOA disregards the
extent to which non-U.S. companies have stopped transacting with Iranian
entities due to the U.Ss prohibition on dollar-clearing transactions and
regulatory enforcement actions, both of which are part of the U.S. primary
sanctions regime and continue to be in full force following the signing of the
66
Transcript of Background Conference Call on Iran, The White House (Jul. 14, 2015),
https://www.whitehouse.gov/the-press-office/2015/07/14/background-conference-call-iran.
67
The Iran Nuclear Deal: What You Need to Know About the JCPOA, The White House, 8,
22 (2015),
https://www.whitehouse.gov/sites/default/files/docs/jcpoa_what_you_need_to_know.pdf.
2016]
19
JCPOA. Thus, foreign businesses will either continue to remain on the

sidelines, thereby foreclosing the possibility of meaningful economic relief, or
re-renter the Iranian market despite these measures, making them by definition
less effective measures by which to influence international business activity.
Furthermore, to make such a move in Iranian markets, rational business actors
seeking to re-enter the Iranian market will likely try to find ways to decrease
their vulnerability to U.S. primary sanctions, including decreasing their
exposure to the U.S. financial system. This would not only take away from the
dissuasive force of the dollar-clearing ban and regulatory enforcement actions;
it would also undermine the primary sanctions regime as a whole.
Secondly, the JCPOA does not deal with the U.S. Treasurys campaign to
convince international actors to stop doing business with Iran by highlighting
the underlying riskiness of such activity. This likely means that foreign banks
will either continue to avoid the Iranian market (again decreasing the likelihood
that the Iranians will get the economic relief they expect) or enter the Iranian
market in spite of Treasurys arguments, which would involve them
discounting those arguments and thus undermine the credibility of Treasury
officials in applying the same type of financial suasion in the future.
THE SECONDARY SANCTIONS LIFTED BY THE JCPOA
Under the JCPOA, the United States has lifted sanctions as to non-U.S. persons
by de-listing entities from the SDN list and dismantling legal authorities
prohibiting certain types of business activities involving Iran. Since the delisting of an entity simply means that a foreign business is no longer
completely barred from transacting with that entity, what really gives meaning
to the United States sanctions commitment are the withdrawal of the legal
authorities that limited the scope of permissible business activities with undesignated entities.68
68
To be sure, insofar as foreign businesses blocked Iranian transactions as a result of U.S.

designations, the removal of those designations will allow foreign businesses to immediately
process those transactions, unfreezing assets and resulting in an uptick in foreign business
activity involving Iran. However, the significance of this uptick is questionable. For one, it
is unclear exactly how much in previously unfrozen assets the JCPOA has released. While
some media outlets have reported that the JCPOA would free up to $100 billion in
previously unfrozen assets, reports fully explaining where all of these assets are located and
when they were frozen are hard to find. In fact, one economist has argued that the JCPOA
would unfreeze only $30 billion in assets, concluding that larger estimates include Iranian
funds that have been frozen in foreign banks dating back to the Iranian Revolution and that
some of Iran's funds have been blocked for a long time, and they have nothing to do with
the nuclear agreement. Matt Pearce, Where are Iran's billions in frozen assets, and how
soon will it get them back?, Los Angeles Times (Jan. 20, 2016),
http://www.latimes.com/world/middleeast/la-fg-iran-frozen-assets-20160120-story.html.
Even if the JCPOA freed $100 billion worth in previously unfrozen assets, the resulting
windfall to Iran is likely more limited; Irans preexisting financial obligations probably
20
[Vol. 4:2]
These authorities comprise of four congressional statutesthe IFCA,

ITRSHRA, NDAA 2012, and section 5 of the ISA (which includes the
amendments to the statute under the ITRSHRA and CISADA)along with
five executive orders implementing the sanctions mandated under the statutes.
In aggregate, these statutes sought to discourage foreign companies from
transacting with Iranian entities by imposing three types of sanctions:
correspondent or payable-through account sanctions, blocking sanctions, and
menu-based sanctions.
Correspondent or payable-through account sanctions targeted foreign financial
institutions that did business in Iran by prohibiting them from maintaining a
correspondent account or a payable-through account in the United States. Such
accounts allow a foreign bank to authorize a U.S. bank to act as its agent in
managing its financial affairs in the United States.69 In particular, a foreign
bank with correspondent and payable-through accounts at a U.S. bank
empowers the U.S. bank to provide credit, deposit, collection, clearing, and
payment services to U.S. customers in the foreign banks name. 70 Thus, by
maintaining correspondent and payable-through accounts in the United States
bank, foreign banks are able conduct business in the United States without a
physical presence and access the U.S. dollars.71
decrease the amount of usable liquid assets to approximately $50 billion, of which $25
billion will probably be kept in foreign reserves. Cyrus Amir-Mokri and Hamid Biglari, A
Windfall for Iran?, Foreign Affairs, 25 (Nov./Dec. 2015). Although not an insignificant
amount, $25 billion pales in comparison to the levels of investment and business activity
experts forecast are needed to help rebuild Irans economy, estimated to be close to $1
trillion. Ibid. For this reason, both proponents and opponents of the JCPOA have
downplayed the significance of the unfreezing of assets in their assessment of the impact of
sanctions relief on Iran. Ibid.; Matt Pearce, Where are Iran's billions (quoting Mark
Dubowitz, director of the Foundation for Defense of Democracies and a critic of the JCPOA,
"Iran's overall economic relief as a result of [the lifting of] sanctions is multiples of [the
amount currently frozen in banks] Ultimately it will prove to be a rounding error
compared to what Iran will earn over the next number of years."). See also Patrick Clawson,
Iran's 'Frozen' Assets: Exaggeration on Both Sides of the Debate; Will Iran Get Its Billions
Back, The Washington Institute (Sept. 1, 2015), http://www.washingtoninstitute.org/policy
-analysis/view/irans-frozen-assets-exaggeration-on-both-sides-of-the-debate. Finally, it is
worth remembering that while the United States has historically spearheaded the sanctions
effort against Iran, the JCPOA also lifts sanctions imposed by the European Union, which
include designations that overlap with those removed by the United States. Disentangling
the impact of these sanctions regimes on the behavior of foreign multinationals is difficult, if
not impossible, but the multilateral character of these suggests that one should not
automatically explain the unfreezing of assets by foreign businesses as the product of U.S.
delisting actions, particularly to the degree those assets include assets previously frozen by
foreign businesses in response to designations by their home countries.
69
Avi Jorisch, Irans Dirty Banking: How the Islamic Republic Skirts International
Financial Sanctions 13 (2010).
70
Ibid.
71
Ibid.
2016]
21
Blocking sanctions referred to the prohibitions on transactions involving the

property interests of foreign persons doing business with Iran when those
interests were within the United States or came within the possession or control
of a U.S. person. Blocking is another word for freezing and is a means for
controlling the property of a sanctioned person; title to the blocked property
remains with the sanctioned person, but the exercise of powers and privileges
normally associated with ownership is prohibited without authorization from
OFAC.72 Blocking immediately imposes an across-the-board bar on transfers
or dealings of any kind with regard to the property.73 As a result, pre-JCPOA,
a foreign company doing business with Iran ran the risk that it would lose the
ability to use, access, or transfer all of its property within the United States.
Finally, menu-based sanctions were sanctions prescribed by Congress in a
menu from which Congress directed the President to implement a certain
number of sanctions. For example, Section 1245(a) of the IFCA (waived under
the JCPOA with respect to non-U.S. persons) directed the President to impose
5 or more of the sanctions described in section 6(a) of the [ISA] on persons
who sell, supply, or transfer graphite, raw or semi-finished metals to or from
Iran.74 In the case of the JCPOA, all the menu-based sanctions waived by the
U.S. government were the 13 types of sanctions listed in section 6(a) of the
ISA, which primarily included prohibitions on government loan assistance and
the ability to engage in business activity in the United States.75 Before the
signing of the JCPOA, a foreign entity who ran afoul of these sanctions faced
the possibility that it would be completely closed off from the U.S.
marketplace.
72
OFAC FAQs: General Questions, U.S. Dept of Treasury,

https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_general.aspx
73
Ibid.
74
Pub. L. No. 112239, 126 Stat. 1632, 1245(a).
75
These are prohibitions on the following: Export-Import bank assistance for exports to
sanctioned persons; exports to sanctioned persons; loans from U.S. financial institution to
any sanctioned person totaling more than $10 million any 12-month period, unless such
loans are for the purpose of facilitating humanitarian activities; designation of sanctioned
persons as primary dealers in United States government debt securities (relevant only in the
case of financial institutions); service on the part of sanctioned persons as agents of the
United States government or repositories for United States government funds (relevant only
in the case of financial institutions); contracts between the U.S. government and sanctioned
persons; foreign exchange transactions subject to the jurisdiction of the United States and in
which the sanctioned person has any interest; banking transactions subject to the jurisdiction
of the United States and in which the sanctioned person has any interest; property
transactions subject to the jurisdiction of the United States and in which the sanctioned
person has any interest; investments by a United States person in the equity or debt of a
sanctioned person; issuance of visas to corporate officers, directors, and controlling
shareholders of a sanctioned person; and imports from a sanctioned person. In addition,
section 6(a) empowers the President to impose any of these sanctions on the principal
executive officer or officers of the sanctioned person. Pub. L. No. 104172, 110 Stat. 1541,
6(a).
22
[Vol. 4:2]
THE DOLLAR-CLEARING BAN AND ENFORCEMENT ACTIONS

While the JCPOA lifted virtually all of the United States secondary sanctions,
it did not remove or in way deal with two non-secondary legal measures that
played a critical role in isolating Iran from international marketsthe
prohibition on banks in the United States from effecting dollar-clearing
transactions on behalf Iranian entities and the slew of U.S. enforcement actions
in the mid-2000s against multinational banks with business ties to Iran.
Beginning in November 2008, the U.S. government barred banks in the United
States from converting payments into dollarsdollar-clearingfor the benefit
of Iranian entities, even when non-Iranian, foreign financial institutions are at
both ends of the transactions. An example of a prohibited transaction is the
following: Iran sells oil to a non-U.S. customer, who in turn directs its bank, a
non-Iranian foreign bank, to deposit dollars obtained from a bank in the U.S.
into a second non-Iranian foreign bank, for the direct or indirect benefit of
persons in Iran or the Government of Iran.76
As a result, the ban on dollar-clearing transactions creates serious challenges
for foreign businesses effectuating deals with Iranian counterparts. Foreign
companies rely significantly on dollar-clearing to effectuate international deals
as the vast majority of global transactions are priced in US dollars.77 By one
measure, transactions in U.S. dollars account for approximately 85 percent of
global trade transactions, even when the parties involved are based outside the
United States.78 Companies trade goods in US dollars, purchase raw materials
and supplies in US dollars, and borrow and raise US dollars to fund their
purchases and operations. 79 Indeed, before November 2008, the Treasury
Department specifically authorized dollar-clearing of Iran-related transactions
because almost all oil transactions are priced in dollars and it did not want to
significantly disrupt the oil markets, particularly in light of the dependency of
many countries (including allies) on Iranian oil. 80
Second, the JCPOA does not reckon with the effects of the United States
campaign of devastating enforcement actions against foreign banks doing
business with Iran. Starting in 2004, various U.S. authorities began
aggressively pursuing foreign banks that had violated sanctions, imposing
76
Client Alert, Iranian "U-Turn" Transfers Now Prohibited, Gibson Dunn (Nov. 12, 2008),
http://www.gibsondunn.com/publications/pages/IranianUTurnTransfersNowProhibited.aspx.
77
Ernest T. Patrikis, Will enforcement of US sanctions reshape how US-dollar transactions
are cleared?, Financier Worldwide (Sept. 2014).
78
Bashir and Lorber, Unfreezing Iran After the Moderate Win.
79
Patrikis, Will enforcement of US sanctions reshape how US-dollar transactions are
cleared.
80
2016]
23
multi-billion dollar fines and in certain instances limiting banks access to U.S.
markets. What is important to stress about these actions is that they all
involved foreign financial institutions insufficiently walling off their Iran
operations from their U.S. businesses, not secondary sanctions violations. All
of the United States enforcement actions targeted banks that had violated
primary sanctions by covering up their transactions with Iranian entities so as
to deceive U.S. counterparties or otherwise process those transactions through
the U.S. financial system.81
These enforcement actions pushed banks to exit their Iran businesses in several
ways. First of all, banks entering into deferred prosecution agreements with
U.S. authorities often had to explicitly agree to cut off their Iran operations for
a specified period of time, frequently ranging from three to five years. Second,
many foreign banks who had yet to find themselves in the crosshairs of U.S.
authorities reasoned that the potential of a mammoth financial penalty rendered
any Iran business prohibitively risky, and decided instead to altogether
eliminate their Iran operations. A process called de-risking, banks made the
determination that they would be better served by completely exiting the
business line giving rise to the risk of financial penalties, instead of investing in
the technologies and compliance systems to manage that risk.82
81
See e.g., Information at 4-5, U.S. v. H.S.B.C. Bank, No. 12-763 (E.D.N.Y. Dec. 11, 2012);
Deferred Prosecution Agreement at 19-20, U.S. v. Standard Chartered Bank, Case: 1:12-cr00262 (D.C. Cir. Dec. 10, 2012); Deferred Prosecution Agreement at 29-S1, U.S. v.
Commerzbank AG, Case: 1:2015cv00818 (D.C. Cir. Mar. 12, 2015); Information at 1-4, U.S.
v. BNP Paribas, S.A., No. 1:14-cr-00460, (S.D.N.Y. Jun. 30, 2014).
82
Victoria Anglin, Why Smart Sanctions Need a Smarter Enforcement Mechanism:
Evaluating Recent Settlements Imposed on Sanction-Skirting Banks, 104 Geo. L.J. 693, 715
(2016). In part contributing to this determination was a sense that the cost of instituting the
necessary additional safeguards to prevent sanctions violations would be too high and never
sufficiently full-proof. Ibid. At the same time, U.S. government officials would regularly
emphasize the intentional, recurring nature of the conduct they prosecuted. Indeed, as part
of their settlements with U.S. authorities, foreign banks would frequently agree to factual
statements affirming their knowledge and responsibility. BNP Paribas is one particularly
egregious example; according to the Justice Department, the bank went to elaborate
lengths to conceal prohibited transactions, cover its tracks, and deceive US authorities. See
Information at 1-4, U.S. v. BNP Paribas, S.A., No. 1:14-cr-00460, (S.D.N.Y. Jun. 30, 2014).
Nevertheless, many do not believe that this narrative captures the whole story. According to
one commentator, identifying proliferation-related transactions is no easy feat, and of the
millions of daily transactions, the vast majority are quite benign. Identifying violators is akin
to finding the proverbial needle in a haystack. Aaron Arnold, Big banks and their game of
risk, Bulletin of the Atomic Scientists (Jan. 20, 2015), http://thebulletin.org/big-banks-andtheir-game-risk7941. And banks have in certain cases attributed sanctions violations to the
failure of their internal controls. Following authorities decision to impose additional
penalties on Standard Chartered in 2014, the bank specifically attributed the sanctions
violations to an inadequate information technology system that failed to detect potentially
high-risk transactions. Ibid.
24
[Vol. 4:2]
The JCPOA has not addressed any of these drivers behind banks behavior.
While it is arguably permissible for parties to engage in dollar-clearing outside
of the United States, the structure and economics of the dollar-clearing business
mean that dollar-clearing services must invariably be routed through the United
States, which goes against the primary sanctions regime.83 Consequently,
many foreign companies continue to express reluctance about re-engaging
Iranian businesses. According to Clyde & Co., a London-based law firm, the
prohibition on dollar-clearing transactions plays a significant role in explaining
why 85% of respondents to a recent survey continue to have a negative risk
appetite as to the question of renewing ties with Iran.84 Business people have
also publicly made the point. In an interview with Reuters in March, an
international banker operating in the Persian Gulf stated that his bank
continued to have an aversion to Iranian transactions because of the continued
83
See Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under
the Joint Comprehensive Plan of Action (JCPOA) on Implementation Day, U.S. Dept of
Treasury (Mar. 24, 2016) (After Implementation Day, foreign financial institutions need to
continue to ensure they do not clear U.S. dollar-denominated transactions involving Iran
through U.S. financial institutions.) (emphasis added).
Dollar-clearing is only viable as business model in the United States because dollar-clearing
in the U.S. takes place via two clearing networksthe Federal Reserves Fedwire Funds
Service (FFS) and the privately-owned Clearing House Interbank Payment System
(CHIPs), which can facilitate payments due its status as a customer of FFSthat rapidly
and efficiently process payments as a result of the dollar liquidity provided by the Federal
Reserve. Duncan Kerr, Clearing: European banks weigh up US dollar clearing options,
Euromoney (Jan. 2015); see also Yalman Onaran, Dollar Dominance Intact as U.S. Fines on
Banks Raise Ire, Bloomberg (July 16, 2014). To participate in the FFS, participants must
maintain an account with a Federal Reserve Bank. Subject to the Federal Reserve Bank's
and the Federal Reserve Board's risk reduction policies, where applicable, entities authorized
by law, regulation, policy, or agreement to be participants include depository institutions,
agencies and branches of foreign banks, member banks of the Federal Reserve System, the
Treasury and any entity specifically authorized by federal statute to use the Reserve Banks
as fiscal agents or depositories, entities designated by the Secretary of the Treasury, foreign
central banks, foreign monetary authorities, foreign governments, and certain international
organizations; and any other entities authorized by a Federal Reserve Bank to use Fedwire
Funds or Security Service. See FFIEC IT Examination Handbook Infobase (2016). To
participate in CHIPs, a banking organization must have a regulated U.S. presence and
members must jointly maintain a pre-funded balance account on the books of the Federal
Reserve Bank of New York. Ibid. Without that backstop, dollar-clearing becomes
impracticable as a business model; banks are not able to provide dollar-clearing services to
business clients on a sustainable basis and dollar-clearing is a commodity business with low
profit margins that relies on volume to justify the required capital investment. See Ernest T.
Patrikis, Will enforcement of US sanctions reshape how US-dollar transactions are
cleared?, Financier Worldwide (Sept. 2014). Accordingly, although dollar-clearing has
technically been available in Hong Kong and Singapore for two decades, those platforms
have not taken off and the aggregate volume of dollar-clearing transactions in those cities
accounts for less than one percent of the global total. See Onaran, Dollar Dominance Intact.
84
London Markets Risk Appetite for Iran Business Weighed Down by Remaining US
sanctions, Clyde & Co (Feb. 22, 2016),
http://www.clydeco.com/blog/sanctions/article/london-markets-risk-appetite-for-iranbusiness-weighed-down-by-remaining-us.
2016]
25
ban on dollar-clearing. "Around 85 percent of trade is in U.S. dollars and if

you're dealing in dollars you cannot risk that by involvement with Iran." 85
As for regulatory enforcement actions, OFAC has explicitly stated that the
agreement does not alter the terms or conditions of deferred prosecution
agreements into which banks may have entered.86 This means that, barring any
actions by the relevant regulatory authorities, foreign banks that have entered
into these agreements are legally unable to enter into the Iranian market even if
they want to. As for the rest of the banking industry, the JCPOA does nothing
to deal with why foreign banks have decided to de-risk themselves from the
Iranian market. Not only have regulators not made any indications that they
will scale back penalties or other punishments, but the JCPOA did not alter the
underlying legal basis upon which they were able to go after banks in the first
placenamely, the United States primary sanctions regime against Iran.
Insofar as the past decades campaign of regulatory actions against banks has
scared the industry away from the Iranian market, foreign financial institutions
will not find any language in the JCPOA to alleviate that fear.
Thus, the fact that the United States does not deal with the ban on dollarclearing or the U.S.s campaign of enforcement actions means that the partial
unwinding of sanctions under the JCPOA is unlikely to simultaneously provide
Iran the economic relief it expects while leaving the rest of the U.S. sanctions
architecture unaffected. If the ban on dollar-clearing transactions and the
possibility of enforcement actions continue to dissuade foreign businesses from
pursuing business opportunities in Iran, Iran will probably not get the economic
relief it anticipates. For many of the foreign banks and businesses who shut
down their Iran operations in the late 2000sand with which Iran hopes to
reconnectthese measures prohibitively raise the cost of doing business.
Alternatively, if foreign businesses re-enter the Iranian market, they will have
to do so despite these government actions, by definition rendering them a less
dissuasive force. More specifically, to the degree that rational business actors
seek to pursue Iranian business opportunities, they will have to develop
workarounds that decrease their exposure to the United States, making it more
difficult for the United States to pressure them by threatening to close them off
from the U.S. financial system. To do business with Iran despite the ban on
dollar-clearing transactions, foreign companies will have to find ways to
effectuate deals in alternative currencies to the dollar. To eliminate their
vulnerability to enforcement actions, financial institutions will have to figure
85
Tom Arnold and Jonathan Saul, Iranians exasperated as U.S. sanctions frustrate deal
making (Mar. 22, 2016), http://www.reuters.com/article/us-iran-trade-financeidUSKCN0WO1Y3.
86
Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the
Joint Comprehensive Plan of Action (JCPOA) on Implementation Day, U.S. Dept of
Treasury (Mar. 24, 2016).
26
[Vol. 4:2]
out ways to do business with Iranian entities without running afoul of primary
sanctionseither by devoting more resources to walling off Iranian
transactions from the United States financial system or by simply reducing
their exposure to U.S. markets. European and Asian companies have a special
incentive to decrease their exposure to U.S. markets in light of the fact that,
while the United States has not lifted the ban on dollar-clearing transactions or
indicated that it will stop pursuing enforcement actions, the European Union
and other states have mostly relaxed their Iran sanctions programs. 87 The
different paces at which the United States and the rest of the P5+1 have
unwound sanctions means that in the long-term foreign businesses will have an
easier time avoiding U.S. markets, thereby diminishing the United States
ability to effectively levy sanctions in the future.88
While global companies have by no means started exiting the U.S. market in
mass, there is evidence that some foreign businesses have begun exploring
ways to decrease their exposure to the U.S. financial system in order to transact
with Iran after the signing of the JCPOA. In an interview with the author, a
European lawyer noted that some companies have begun working around the
United States prohibition on dollar-clearing by closing and settling dollarpriced contracts in alternative currencies, such as the euro.89 In Japan, the
Bank of Tokyo-Mitsubishi has announced that it will handle payments by
Japanese oil refiners to Iran in both yen and euros and two other Japanese
banks have reportedly looked into reinitiating non-dollar wiring services to
Iran.90 Foreign governments have also been responding to the renewed
business interest in the Iranian market by actively exploring ways to enable
businesses to carry out transactions in alternative currencies. The Government
of Pakistan has asked the State Bank of Pakistan to come up with an interim
payment mechanism so that Pakistani companies can enter Iran without relying
dollars; South Korea is exploring ways to encourage dealings with Iran in its
own currency or euros; and Brazils trade minister announced in February that
his government will look to enable payments in euros and other currencies to
and from Iran because everyone is racing after Iran nowthe trade potential
is very big.91
87

Ibid.
89
Telephone Interview, (Feb. 23, 2016).
90
Japan's Bank of Tokyo-Mitsubishi UFJ restarts Iran oil transactions, S&P Global (Feb. 9,
2016).
91
Kazim Alam, Treading with caution in trade with Iran, The Express Tribune (Feb. 15,
2016), http://tribune.com.pk/story/1046858/long-way-still-to-go-treading-with-caution-intrade-with-iran/; Yi Whan-Woo, Korea, Iran to revive economic ties, The Korea Times (Jan.
27, 2016), http://www.koreatimes.co.kr/www/news/. The author thanks Omar Bashir and
Eric Lorber for their excellent summary of these various reports in their recent Foreign
Affairs article. See Unfreezing Iran After the Moderate Win.
88
2016]
27
Indeed, according to Omar Bashir and Eric Lorber of the Financial Integrity
Network, these moves only continue a recent, larger trend of companies and
countries avoiding the U.S. financial system out of fear of U.S. sanctions. 92
For instance, many analysts believe that the recent Chinese push to make the
renminbi a reserve currency was partly the result of a Chinese desire to ensure
that the United States would not be able to bring significant coercive economic
leverage to bear on China in the future. 93 Likewise, Bashir and Lorber
discuss the potential that Chinas new China International Payment System, a
financial messaging network like Brussels-based SWIFTthe global system
on which banks rely to coordinate the transfer of trillions of dollars every
daywill insulate the country from the sanctions that proved so powerful
against Iran.94
TREASURYS PRIVATE OUTREACH TO FOREIGN BANKS
The JCPOA also does not address an extra-legal effort on the part of the United
States government during the 2000snamely, Treasury officials private
outreach to foreign banks and their efforts to persuade banks to cut off their
Iran operations by demonstrating the inherent riskiness of transacting with Iran.
From 2006 to 2012, Treasury officials directly reached out to over 200 banks in
more than 60 countries to convince them to cut off ties with Iranian banks.95
Treasurys argument boiled down to making clear to banks the core risk of
doing business in Iran, which in the words of Treasury official Danny Glaser
was the risk that in any business involving Iran you cannot be certain that the
party with whom you are dealing is not connected to some form of illicit
activity.96 This risk had several counters, the details of which Glaser
described in a House Committee hearing in 2008. One, the Iranian government
and designated Iranian entities regularly used front companies and
intermediaries in ostensibly legitimate commercial transactions that [were]
actually related to its nuclear and missile programs.97 Two, Iranian banks
would ask foreign financial institutions to remove their names when
processing transactions and thus elude the controls put in place by
responsible financial institutions, potentially involving them in transactions
that they other would never engage in. 98 Accordingly, Iranian banks would
nation/2016/01/120_196402.html; Alonso Soto, Exclusive: Brazil could waive U.S. dollar to
bolster Iran trade minister, Reuters (Feb. 16, 2016), http://www.reuters.com/article/usbrazil-iran-trade-idUSKCN0VP249.
92
93
Ibid.
94
Ibid.
95
Kittrie, Lawfare 137.
96
Between Feckless and Reckless, at 32.
97
Ibid., at 28.
98
Ibid.
28
[Vol. 4:2]
proceed undetected as they move money through the international financial

system to pay for the Iranian regimes illicit and terrorist-related activities.99
Three, foreign financial institutions could place little faith in Irans anti-money
laundering (AML) regime, which was wrought with substantial deficiencies
that hampered Irans ability to detect or prevent terrorist financing.100 Treasury
would specifically cite findings by the Financial Action Task Force (FATF),
an intergovernmental organization dedicated to develop policies to combat
money laundering, and the International Monetary Fund (IMF), detailing
Irans AML problems.101 These included insufficient criminalization of
money laundering, failure to criminalize terrorist financing, lack of AML
supervision, lack of financial intelligence unit, lack of sanctions
implementation, and lack of international cooperation in AML
investigations.102
To the extent that the core risk of doing Iranian business materialized,
foreign financial institutions would find themselves wrapped up in a sanctioned
transaction that would damage their reputations in the international
marketplace and make them the target of U.S. enforcement actionsa
possibility that, in light of the increasingly punitive fines and other penalties
U.S. authorities were imposing on sanctions violators, no bank wanted to
entertain.103 Juan Zarate neatly illustrates Treasurys emphasis on the
inherently suspect nature of Iranian business in an account of one particular
meeting between Stuart Levey, then Treasury Under Secretary for Terrorism
and Financial Intelligence, and a German bank executive team:
On one occasion, Levey had compiled information about Irans use of
a German bank to move money for acquisitions for their operations,
potentially for the nuclear program. When Levey met with the banks
CEO and chief compliance officer, he asked them if they knew what
was happening in their bank. The compliance officer seemed
confident. The CEO less so and worried about what was to come.
Levey then calmly explained what the U.S. government knew about
Iranian financial transactions and the use of cover payments and front
companies to hide the real purpose for their banking. The IRGC was
using bank accounts in Europe to acquire nuclear equipment and to
develop its missile systems while lining their leaders pockets. Levey
went on to explain that most banks did not realize this, but that it was
happening. The banks thus far had no way to know what was
transpiring through Iranian front operations and accounts. Levey then
99
Ibid.
Ibid.
101
Ibid.
102
Ibid.
103
Ibid., at 34.
100
2016]
29
put a file on the table that contained documents detailing those types of
transactions happening in that very bank.
After absorbing this revelation, the CEO was stunned, the compliance
officer sheepish and worried. The CEO took the documents and
thanked Levey for the information. He said he would take the
information under consideration and look into the matter. The meeting
was over, and it had its effect. The bank began to close its accounts
with Iranian customers and curtail its business with Iran.104
The JCPOA does not address the effect of this campaign of financial suasion
on international banks risk assessment of Iran. To be sure, the hefty fines
coming out of the stripping cases in which U.S. authorities penalized
banks like BNP Paribas for stripping the names of Iranian customers before
processing them through the U.S. financial systemare unlikely to lead
financial institutions to honor requests to strip the names of their Iranian
counterparts. The JCPOA also establishes a legal framework for Iran to pursue
a nuclear program and thus allows for legitimate nuclear-related commercial
transactions. Nevertheless, the risks that Treasury highlighted in the mid-2000s
remain as true today as they did before the JCPOAby doing business in Iran,
foreign banks still open themselves up to the possibility of dealing with front
companies and intermediaries engaged in illicit conduct and they cannot count
on a robust Iranian AML regime to manage this risk. While the United States
now allows foreign financial institutions to transact with Iranian entities as long
as they are not SDNs, the JCPOA does not deal with the bigger elephant in the
roomthe perception that has developed among many banks that they can
never know for sure that an Iranian counterparty is not mired in the type of
illegal activity that will expose them to heavy fines and penalties.
Since the JCPOA does not address any of these risks beyond those specifically
implicated by Irans nuclear program, any move by foreign banks to re-enter
the Iranian market would necessarily require them to discount Treasurys
arguments concerning the potential dangers posed by transacting with Iranian
entities. For foreign entities to pursue business opportunities in Iran despite
these risks, they will either have to envision the possibility of greater returns
following the JCPOA (to offset these risks) or discount the existence of these
risks altogether. Although Iran presents significant business and investment
opportunities for foreign companies, those opportunities (e.g., development of
oil and gas resources, infrastructure renewal, technology investment) pre-date
the JCPOA and have been long known by foreign companies. Accordingly, in
light of the current terms of the JCPOA, any re-orientation by foreign banks
with respect to the Iranian market will likely require them to discount
104
30
[Vol. 4:2]
Treasurys arguments about the underlying risk of transacting with Iranian

entities.
Such a move would also more generally undermine the U.S.s credibility in
applying financial suasion against foreign financial entities. Companies would
have less reason to give weight to the U.S.s arguments about the risks a
particular country poses to the integrity of the financial system if they know
that they have no other purpose than to effectuate a particular political goal of
the United States. This is important because, amidst the multiple factors
pushing foreign businesses to withdraw from the Iranian market, Treasurys
arguments about the inherently suspect nature of Iranian transactions played a
special role in convincing banks to completely cut off their Iranian operations
(rather than try to manage their risks through additional compliance efforts).
For example, by characterizing the Iranian financial system as inherently risky,
Treasury helped give rise to a virtuous cycle of foreign banks exiting the
Iranian market as no foreign bank wanted to be the last international bank
transacting with shady designated Iranian banks.105 In turn, such private
sector decisions made it more politically feasible for foreign governments to
impose restrictions because some or all of the major relevant companies in their
jurisdiction had already foregone the business.106 Thus, Juan Zarate writes
that it is the threat to the international financial system of the illicit and
suspect flows of money that [has been] the baseline for Irans isolation. 107 If
the perception is that this suspicion is gone and normalization is to follow, then
the ability to use this kind of financial suasion will be weakened.108
C. The Meaninglessness of Nuclear-Only Sanctions
More clearly than the secondary/primary sanctions distinction, the distinction
between nuclear and non-nuclear-related sanctions fails as an organizing
principle by which to partially unwind sanctions. While the JCPOA mostly
dismantled secondary sanctions under legal authorities that were enacted as
Iran ratcheted up its nuclear program in the late 2000s, none of these
authorities exclusively cite Irans nuclear program as their driving rationale.
The United States has thus provided sanctions relief that is, as a legal matter,
inherently overinclusive.
105
Kittrie, Lawfare 138.

Ibid.
107
Juan Zarate, Sanctions and the JCPOA, Statement before the Senate Foreign Relations
Committee, 11 (July 30, 2015)
108
Ibid.
106
2016]
31
STATUTORY SANCTIONS
Pursuant to the JCPOA, the Secretary of State has waived sanctions mandated
under four statutesthe Iran Sanctions Act of 1996 (ISA), the National
Defense Authorization Act of 2012 (NDAA 2012), the Iran Threat Reduction
and Syria Human Rights Act of 2012 (ITRSHRA), and the Iran Freedom and
Counter-Proliferation Act of 2012 (IFCA). For the most part, these statutes
do not explicitly link the imposition of sanctions to specific rationales, but they
do recite various policy objectives and findings that shed light on Congresss
reasoning.
The ISA, which is the basis of most of the United States sanctions on Irans
energy sector, comes closest to promulgating sanctions on the basis of specific
objectives. The ISA grounds its sanctions in two rationalesIrans pursuit of
nuclear weapons and support of terrorism. On the face of the statute, the ISA
notes as its first finding that [t]he efforts of the Government of Iran to acquire
weapons of mass destruction and the means to deliver them and its support of
acts of international terrorism endanger the national security and foreign
policy interests of the United States.109 In the subsequent section
Declaration of Policythe ISA more forcefully articulates this dual threat as
the rationale for its prescriptions: [t]he Congress declares that it is the policy
of the United States to deny Iran the ability to support acts of international
terrorism and to fund the development and acquisition of weapons of mass
destructions and the means to deliver them by limiting the development of
Irans ability to explore for, extract, refine, or transport by pipeline petroleum
resources of Iran.110
The National Defense Authorization Act is an approximately 600-page act
passed by Congress on an annual basis specifying the budget and expenditures
of the United States Department of Defense. The NDAA 2012s sanctions
against Iranwhich target Irans financial services sectorappear under
Section 1245. Like the ISA, the NDAA 2012 clearly delineates Congresss
findings before laying out sanctions. And again, the NDAA 2012 does not
focus solelyor even primarilyon Irans nuclear weapons program. Instead,
the NDAA 2012 highlights Irans status as jurisdiction of primary money
laundering concern and the terrorist financing, proliferation financing, and
money laundering risks Iranian banks pose for the global financial
system.111
The ITRSHRA and IFCA are more opaque, but they also do not focus
exclusively on Irans nuclear program. The ITRSHRA sanctions waived by the
109
Pub. L. No. 104172, 110 Stat. 1541.2(1) (emphasis added).

Ibid.,3(a).
111
Pub. L. No. 11281, 125 Stat. 1298, 1245(a)(3).
110
32
[Vol. 4:2]
JCPOA are Sections 212(a) and 213(a) of the ITRSHRA, which target persons
who provide underwriting services or insurance for the National Iranian Oil
Company and National Iranian Tanker Company and transactions involving
Iranian sovereign debt. How one distinguishes the rationale of Sections 212(a)
and 213(a) depends on how one understands their placement within the overall
structure of the statute. Like the ISA and NDAA, the first section of the
ITRSHRA Title I, Expansion of Multilateral Sanctions Regime With
Respect to Iran, Section 101recites Congressional findings and identifies
multiple policy objectives, stating: [i]t is the sense of Congress that the goal of
compelling Iran to abandon efforts to acquire a nuclear weapons capability and
other threatening activities can be effectively achieved through a
comprehensive policy that includes economic sanctions, diplomacy and
military planning, capabilities and options.112 However, Sections 212(a) and
213(a) appear under Subtitle B of Title II, Expansion of Sanctions Relating to
the Energy Sector of Iran and Proliferation of Weapons of Mass Destruction by
Iran, which includes no peramblatory text.113 Subtitle A is titled Expansion
of the Iran Sanctions Act of 1996 and simply amends ISA 1996 while Subtitle
B is titled Additional Measures Relating to Sanctions Against Iran.114 If one
reads Title I and Title II as addressing different sets of sanctionsmulti-lateral
sanctions versus energy/WMD sanctionsone may be more inclined to read
Sections 212(a) and 213(a) in light of Title IIs grounding in the ISA and thus
impute the acts same underlying rationale to these two sections, Irans pursuit
of weapons of mass destruction and support of terrorism.115
The IFCA is even more convoluted in how it defines its rationales. Section
1243titled Sense of Congress Relating to Violations of Human Rights by
Iranis the statutes first section following Definitions and states that
Congress finds that the interests of the United States and international peace
are threatened by the ongoing and destabilizing actions of the Government of
Iran, including its massive, systematic, and extraordinary violations of the
human rights of its own citizens.116 However, the JCPOA does not encompass
this section, which includes no sanctions, and instead waives sanctions
112
Pub. L. No. 112158, 126 Stat. 1214, 101.

Ibid., 212(a), 213(a).
114
Ibid.
115
It is possible to parse the statute further to obtain a narrow rationale. Since the ISA
targets Irans energy sector, one could read Title IIs sequencing of the targets of sanctions
as meaning that Subtitle A prescribes sanctions relating to the energy sector of Iran and
Subtitle B prescribes sanctions pertaining to the proliferation of weapons of mass
destruction by Iran. While this reading would conveniently transform Sections 212(a) and
213(a) sanctions into nuclear-only sanctions, it would presume that Title II implies a neat,
mutually exclusive division of energy sector and WMD sanctions between Subtitle A and
Ban unworkable assumption in light of the fact that that the ISA also targets Irans WMD
program and that Section 212(a) patently targets Irans energy sector by designating the
National Iranian Oil Company and National Iranian Tanker Company.
116
Pub. L. No. 112239, 126 Stat. 1632, 1243.
113
2016]
33
promulgated under Sections 1244, 1245, 1246, and 1247. Roughly speaking,
these sections impose sanctions on activity involving Irans energy, shipping,
and shipbuilding industries, transactions involving precious metals or specified
materials used in connection with Iran's nuclear, military, or ballistic missile
program, the provision of underwriting services, insurance, or reinsurance in
connection with any sanctioned activity, and significant financial transactions
between foreign financial institutions and designated Iranian banks. If one
parses each section, one gets a bit more clarity on the rationale, but nothing that
looks like exclusively nuclear program-related sanctions. Section 1244 comes
closest, with subsection (a)(1) stating that "Iran's energy, shipping, and
shipbuilding sectors and Iran's ports are facilitating the Government of Iran's
nuclear proliferation activities by providing revenue to support proliferation
activities."117 However, the use of the term proliferation suggests that the
section not only covers Irans efforts to acquire nuclear weapons (the focus of
the JCPOA) but also Irans efforts to distribute nuclear technology, which the
JCPOA addresses only as an ancillary matter. Section 1245 includes no similar
subsection describing Congresss findings, but the fact that it imposes sanctions
in relation to conduct involving Irans nuclear, military, or ballistic missile
programs suggests that these multiple programs (not just Irans nuclear
program) are what motivated these sanctions.118 Section 1246 also includes no
preamblatory language and opens up a bigger can of worms given that it
imposes sanctions on individuals providing services in connection with already
sanctioned activities; the section then arguably imputes all of the rationales
cited by the various Iran sanctions statutes, executive orders, and regulations.119
Finally, Section 1247 does not rationalize its set of sanctions, but in light of the
fact that it expands the financial services sanctions promulgated under NDAA
2012, one can perhaps infer that the rationale motivating the NDAA 2012 also
underlies Section 1247namely, the terrorist financing, proliferation
financing, and money laundering risks posed by Iranian banks.120
EXECUTIVE ORDERS
In addition to waiving statutory sanctions, the United States has revoked five
executive orders mandating sanctions against Iranin their entirety, Executive
Order (E.O) 13574, 13590, 13622, and 13645, and partly, E.O 13628
(Sections 5-7). All five of the Executive Orders revoked by the President
predicate sanctions on the basis of the general statutory authority of IEEPA,
while three additionally cite Iran-specific statutory authorities. None
exclusively recite Irans nuclear program as their underlying rationale.
117
Ibid., 1244(a)(1).
Ibid., 1245.
119
Ibid., 1246.
120
Ibid., 1247.
118
34
[Vol. 4:2]
E.O. 13574, dated May 23, 2011 and promulgated on the basis of IEEPA, ISA,
and CISADA 2010, provides implementation authority for certain menubased sanctions set forth in the ISA, including sanctions added to the ISA
through amendment by CISADA 2010.121 Both ISA and CISADA 2010
unequivocally rationalize sanctions on various groundsIrans nuclear
program, ballistics weapon program, and support of terrorismand the
President explicitly justifies E.O. 13574 in these terms in his IEEPA
certification to Congress.122
E.O 13590, dated November 20, 2011, provides for menu-based sanctions with
respect to persons who provide goods and services to Iran that could advance
the maintenance or expansion of Irans petrochemical industry. 123 While E.O.
13590 grounds sanctions entirely in the Presidents IEEPA authority, the
Presidents IEEPA certification to Congress emphasizes that [t]his order
expands upon actions taken pursuant to ISA, as amended by CISADA by
expanding the scope of targeted persons. Accordingly, the same multifaceted
rationale of ISA and CISADA imputed to E.O. 13574 can be imputed to E.O.
13590.
E.O. 13622, dated July 30, 2012 and based on the Presidents IEEPA powers,
also imposes sanctions on activities involving Irans petrochemical industry,
including persons and financial institutions engaged in transactions with the
National Iranian Oil Company (NIOC) and Nafitran Intertrade Company
(NICO), along with sanctions on persons and financial institutions doing
business with the Central Bank of Iran.124 In both the Order and the
accompanying message to Congress, the President cites three rationales: the
Government of Iran's use of revenues from petroleum, petroleum products, and
petrochemicals for illicit purposes, Iran's continued attempts to evade
international sanctions through deceptive practices, and the unacceptable risk
posed to the international financial system by Iran's activities.125
E.O. 13645, dated June 3, 2013 and grounded in IEEPA, ISA, CISADA 2010,
and IFCA 2012, imposes sanctions on persons transacting in the Iranian rial,
engaging in business involving Irans automotive sector, and providing
121

ISA is discussed above. Sections 2 Findings and Section 3 Sense of Congress
Regarding the Need to Impose Additional Sanctions With Respect to Iran of CISADA,
collectively, rationalize the imposition of new sanctions on the following bases: illicit
nuclear activities of the Government of Iran, Irans development of unconventional
weapons and ballistic missiles, Irans support for international terrorism, and Irans
serious, systematic, and ongoing violations of human rights.
123
124
125
Ibid.
122
2016]
35
material support to any Iranian person on the SDN list.126 Like E.O. 13574,
E.O. 13645s rationale can be inferred in light of its grounding in multiple
specific statutory authorities, each of which is predicated on a variety of
rationales. That inference is supported by the fact that the Order targets Irans
petrochemical industry and financial services sector. ISA and CISADA
mandate sanctions on the petrochemical sector in light of the revenues the
Government of Iran allegedly raises from the industry to fund its nuclear
program, ballistic missiles programs, and support of terrorism. And the IFCA
calls for sanctions on Iranian banks that build on the NDAAs codification of
the U.S. Treasurys designation of Iran as a center of primary moneylaundering concern.
E.O. 13628, dated October 9, 2012 and based on IEEPA, ISA 1996, CISADA
2010, and ITRSHRA 2012, implements sanctions required by ITRSHRA 2012,
including its amendments to the statutory requirements of ISA and CISADA.127
In particular, Sections 5-7 of the Order, waived by the JCPOA, prescribes
menu-based sanctions on persons who between the dates of July 1, 2010 and
August 10, 2012 provided goods and services to Iran that could advance the
maintenance or expansion of Irans refined petrochemical industry or Irans
ability to import refined petrochemical products.128 Again, multiple
justifications can be deduced from the jumbled rationale of the specific
statutory authority underlying the Orderthe IRSHRA cites Irans nuclear
program, other threatening activities, while also piggybacking off of the
ISAs more expansive delineation of the threats posed by Iran. Moreover, that
the sanctions under Sections 5-7 target the petrochemical industry suggests that
these sections specifically implement the ITRSHRA 2012s amendments to the
ISA, which would implicate the ISAs broad rationale for sanctions.
SDN DESIGNATIONS
Finally, pursuant to the JCPOA, the United States has removed 385 Iranian
individuals and entities from the SDN list, decreasing the number of Iranian
SDNs by approximately two-thirds.129 While accounting for the rationale of
each designation is a cumbersome task, many of the notable removals involved
entities designated for reasons unrelated to Irans nuclear program. For
example, all 49 financial institutions removed from the SDN list were
originally designated for various reasons, including financing terrorist
activities, money laundering, and running afoul of global standards.130
126

128
Ibid., Sec 5- Sec.7.
129
Joint Comprehensive Plan of Action, Ann. II, attach. 3.
130
See Fact Sheet, U.S. Dept of Treasury, Overview of Iranian-Linked Financial
Institutions Designated by the United States (Jan. 23, 2012),
127
36
[Vol. 4:2]
Likewise, the National Iranian Oil Company (NIOC) and National Iranian
Tanker Company (NITC), respectively Irans main oil and tanker companies,
were originally designated as affiliates of the Islamic Revolutionary Guard
Corps (IRGC), whose status as an SDN results from non-nuclear-related
activities and is not altered by the JCPOA.131 In fact, the Treasury Department
effected the removal of NIOC and NITC from the SDN list by finding that they
were no longer affiliates of the IRGC.132
IMPLICATIONS OF THE MEANINGLESSNESS OF THE NUCLEAR/NONNUCLEAR DISTINCTION
Fundamentally, the meaninglessness of the nuclear/non-nuclear distinction
means that, as a legal matter, the United States has structured sanctions relief in
a way that is inherently overinclusive. Pursuant to the JCPOA, the United
States has dismantled sanctions that either say nothing about Irans nuclear
program or additionally cite various non-nuclear related activities of the Iranian
government, including support of terrorism and money laundering.
The disconnect between the rationale that the legal authorities dismantled by
the JCPOA reference and the JCPOAs characterization of those authorities
also means that the nuclear/non-nuclear distinction fails as a device by which to
frame how policymakers and the rest of the public evaluate which sanctions
ought to be within the substantive scope of the agreement. In other words, no
single yardstick exists against which to evaluate the appropriate substantive
scope of the U.S.s sanctions commitment. No matter how proponents of the
deal justify the characterization of these sanctions as in truth related to Irans
nuclear program, critics can always counter by referencing the actual text of the
legal acts. For example, strident critics of the JCPOA can simply look to the
text of the NDAAwhich cites the threats posed by Irans financial sector
when they say that the financial services secondary sanctions that the JCPOA
waives with respect to the NDAA have nothing to do with Irans nuclear
program.133
http://www.iranwatch.org/sites/default/files/us-treasury-ofaciranianlinkedfinancialinsitutions-012312.pdf
_Sheet_-_Designated_Iranian_Financial%20Institutions.pdf.; Fact Sheet, U.S. Dept of
Treasury, Increasing Sanctions Against Iran (July 12, 2012), https://www.treasury.gov/presscenter/press-releases/Documents/Fact%
20Sheet%20-%20Increasing%20Sanctions%20Against%20Iran.pdf
131
Press Release, U.S. Dept of State, Designation of Iranian Entities and Individuals for
Proliferation Activities and Support for Terrorism
132
Guidance Relating to the Lifting of Certain U.S. Sanctions Pursuant to the Joint
Comprehensive Plan of Action on Implementation Day, U.S. Dept of Treasury and U.S.
Dept of State, 27, n. 75.
133
Mark Dubowitz and Eric Lorber, Sanctions Experts: Granting Iran Access to Dollars
Endangers Global Banking System, The Tower (Apr. 12, 2016),
2016]
37
The meaninglessness of the nuclear/non-nuclear distinction not only makes it

harder for policymakers and analysts within the United States to think through
what ought to be within the scope of the U.S.s sanctions relief package, but it
also translates into a lost opportunity to manage Irans expectations as to what
it should expect from the deal. If the sanctions lifted by the United States are
nuclear-related in the sense that they came after Irans escalation of its nuclear
program in the 2000s, does it not follow that the United States commitment to
lift all nuclear-related sanctions should encompass all sanctions imposed during
this period, such as the prohibition on dollar-clearing transactions? To be sure,
the determination as to which sanctions were lifted was ultimately the result of
a bargaining process between the United States and Iran; thus, if the Iranian
negotiators did not manage to get a particular sanction removed, it is arguably
their problem. But such a perspective is lacking to the extent that Iran sees the
JCPOA as not simply an agreement in which the United States and its allies
have agreed to rescind specific legal authorities but instead a commitment to
some baseline level of economic normalization (pursuant to paragraphs viii and
29 of the JCPOA). In this context, if the United States conception of what
sanctions it is lifting transcends the text of the underlying legal authorities, then
the United States ability to use those very authorities as a means whereby to
box Irans expectation of what constitutes a baseline level of economic
realization also diminishes. A categorization of the sanctions to be lifted that
derives from the text of the underlying legal authorities would make it easier
for the U.S. to credibly answer complaints about the slow pace of economic
normalization by making those authorities constraints as to how much
normalization Iran should reasonably expect.
Put another way, paragraphs viii and 29 of the JCPOA establish a sort of floor
for the level of economic normalization to which Iran is entitled, an objective
that is theoretically to be facilitated by the United States removal of secondary
sanctions. The fact that the nuclear/non-nuclear distinction is meaningless
means that the JCPOA fails to also establish a concrete ceiling on what
constitutes a reasonable expectation of normalization.
The seriousness of this problem will depend in large part on how broadly the
parties read their commitment to economic normalization and the spirit and
intent of the JCPOA pursuant to paragraphs viii and 29. And whether this
would actually enable the United States to resolve a particular controversy with
Iran about the pace of economic normalization is an open question.
Nevertheless, the problem is embedded in the text of the agreement. The
disconnect between the nuclear/non-nuclear distinction and the rationale of the
underlying legal authorities means that the United States will have a harder
time taking advantage of the constraining force of a legal categorization in
framing the discussion around normalization. For now, it is worthwhile to note
http://www.defenddemocracy.org/media-hit/dubowitz-mark-sanctions-experts-granting-iranaccess-to-dollars-endangers-global-banking/.
38
[Vol. 4:2]
that in response to the Iranian governments recent accusations that certain U.S.
sanctions continue to impede economic normalization, Administration officials
have not countered by simply arguing that these sanctions should be off the
table by virtue of their non-nuclear-related status.134
IV. THE PATH FORWARD

A. Fixing the JCPOA Without Throwing It AwayFinancial Remediation
Since the signing of the JCPOA, policymakers have extensively discussed
ways in which to resolve the various problems created by the structure of the
United States sanctions commitment under the JCPOA. Unfortunately, none of
the proposed solutions manage to fix these problems without diminishing the
possibility of economic relief for Iran, compromising the integrity of the postJCPOA Iran sanctions architecture, or assuming a new round of negotiations
among the parties. Policymakers have generally suggested that the United
States do one of three things: unilaterally offer additional sanctions relief
(which by definition cuts away at the post-JCPOA Iran sanctions architecture),
start an aggressive wave of sanctions (which would hinder economic
normalization with Iran and thus go against paragraphs 29 and viii of the
JCPOA), or re-bargain for additional concessions in exchange for additional
sanctions relief (which would basically amount to a new round of
negotiations).135 All these solutions fall short in helping to realize the promise
of partial sanctions relief within the structure of the JCPOA.
This dearth of good fix-ups may very well mean that the survival of the JCPOA
will depend on political goodwill among the signatories or a new round of
negotiations. Nevertheless, this paper proposes a solution to deal with one
particular gap in the JCPOAthe deals disregard of Treasurys campaign of
financial suasionthat seeks to realize the promise of partial sanctions relief as
it is envisioned under JCPOA. In particular, this paper proposes that the
United States spearhead a financial remediation program whereby Iranian
banks are given the opportunity to verifiably demonstrate the integrity of their
134
See generally Jay Solomon, U.S. Moves to Give Iran Limited Access to Dollars, Wall
Street Journal (Apr. 1, 2016), http://www.wsj.com/articles/u-s-moves-to-give-iran-limitedaccess-to-dollars-1459468597; Jacob Lew, Remarks of Secretary Lew on the Evolution of
Sanctions and Lessons for the Future at the Carnegie Endowment for International Peace,
U.S. Dept of Treasury (Mar. 30, 2016), https://www.treasury.gov
/press-center/press-releases/Pages/jl0398.aspx.
135
See generally Tyler Cullis, Iran Nuclear Deal at Risk, National Iranian American Council
(Apr. 25, 2016), http://www.niacouncil.org/iran-nuclear-deal-at-risk/; Juan Zarate, Sanctions
and the JCPOA; Katherine Bauer, Potential U.S. Clarification of Financial Sanctions
Regulations, The Washington Institute for Near East Policy (Apr. 5, 2016),
http://www.washingtoninstitute.org/policy-analysis/view/potential-u.s.-clarification-offinancial-sanctions-regulations.
2016]
39
businesses by subjecting themselves to inspection and examination by

international financial-standard setting bodies, regulators, and technical
experts. Just as the United States and its allies have developed a set of
procedures by which to ascertain the peaceful nature of Irans nuclear program,
they should develop a roadmap to ascertain the integrity of Iranian financial
institutions that leverages independent international bodies (like the Financial
Action Task Force) and employs technical experts (like financial regulators and
consultants) to carry out an on-the-ground examination of the operations of
Irans financial sector.
Such a mechanism would offer Iran the opportunity to prove to the world the
integrity of its financial system, while providing the United States and its allies
with a platform for inspecting Iranian banks that will allow the United States to
make financial suasion credible and help build a constituency within Irans
financial services sector with a real stake in ensuring AML compliance and
transparency.136 Accordingly a remediation program would simultaneously
increase the possibility that foreign banks will transact with Iranian entities and
maintainor even enhancethe United States ability to apply pressure vis-vis Iranian business activity.
Most importantly, by offering such a program, the United States can start
shifting the conversation around the JCPOAs commitment to economic
normalization from one focused on whether the U.S. has given enough
sanctions relief to one where economic relief is understood to be contingent on
Iran proving the integrity of its financial sector to the international banking
community. Iran, not the United States, must assume the burden of proof.
To make such a program work, policymakers will have to first determine which
banks to engage. This will not be an easy determination to make. Irans
economy is state-dominated and the financial sector is no exception. Irans
major banks are run by the government and state-sponsored entities whose
entanglement with sanctioned activities likely make them unsuitable candidates
for a remediation program.137 Even many nominally private-owned Iranian
banks are owned by semi-government entities or have reportedly had a track
record of financing designated entities.138 For example, the U.S. Treasury has
designated Bank Saderat, privately-owned and Irans largest bank, because of
the Iranian governments use of the bank to channel funds to terrorist
136
Ibid.
Iran Commercial Banking Report Q1 2016, BMI Research, 33-34 (Oct. 2015).
138
Bijan Khajehpour, Can Irans private banks make a difference?, Al-Monitor: Iran Pulse
(Jan. 3, 2014), http://www.al-monitor.com/pulse/originals/2014/01/iran-private-banks.html#.
137
40
[Vol. 4:2]
organizations, including Hezbollah and EU-designated terrorist groups like

Hamas, PFLP-GC, and Palestinian Islamic Jihad.139
These challenges are not insurmountable. One potential starting point is to
work with only those banks that the U.S. government never individually and
specifically designated for having been entangled in illicit activities. From
January 2007 to January 2012, the U.S. Treasury individually designated 23
Iranian banks for processing transactions related to Irans nuclear and ballistic
missile program, financing terrorist organizations, or otherwise facilitating the
activities of designated entities.140 It was only in July 2012, after the
Presidents issuance of Executive Order 13599, which implemented the
NDAAs call for sanctions on the entire Iranian banking system, that the
Treasury Department designated in one full swoop the 17 other banks
comprising the Iranian banking sector.141 While it is by no means clear that
this latter category of banks lack the problems that led Treasury to specifically
designate banks in its actions before July 2012, Treasurys unwillingness to
individually designate these entities and to do so earlier at least suggests that
these problems were not of the same systematically significant or dangerous
nature justifying the particularized designations of these other banks. Indeed,
none of these 17 banks are government-run financial institutions and they all
seem to be smaller than the formally privately-owned Iranian banks whose
more significant size arguably helped facilitate their exposure to illicit activity.
Once the United States and its allies have engaged Iranian banks, they should
make sure to define and allocate burdens of proof in a way that reflects their
presumptive status as suspect actors by placing upon Iranian banks the ultimate
responsibility of demonstrating the integrity of their business operations.
Given the logic of Treasurys financial campaign, which sought to isolate
Iranian banks by specifically highlighting the risks of transacting with Iranian
financial entities, it makes sense that it ought to be up to the targeted
institutions to prove the integrity of their business operations. Any alternative
scheme would upend the gist of this narrative. Rather than committing to
rehabilitating the Iranian banking sector or otherwise assuming the onus of
fixing the industrys problems, policymakers should place the burden of
persuasion squarely on the shoulders of Iranian banks.
139
Fact Sheet, U.S. Dept of Treasury, Designation of Iranian Entities and Individuals for
Proliferation Activities and Support for Terrorism (Oct. 25, 2007),
https://www.treasury.gov/press-center/press-releases/Pages/hp644.aspx.
140
Fact Sheet, U.S. Dept of Treasury, Overview of Iranian-Linked Financial Institutions
Designated.
141
These 17 banks are Bank-E Shahr, Credit Institution for Development, Dey Bank,
Eghtesad Novin Bank, Hekmat Iranian Bank, Iran Zamin Bank, Islamic Regional
Cooperation Bank, Joint Iran-Venezuela Bank, Karafarin Bank, Mehr Iran Credit Union
Bank, Parsian Bank, Pasargad Bank, Saman Bank, Sarmayeh Bank, Tat Bank, Tosee Taavon
Bank, and Tourism Bank. See Fact Sheet, U.S. Dept of Treasury, Increasing Sanctions
Against Iran.
2016]
41
While such an allocation of burdens may appear one-sided, U.S. policymakers

can justify such a burden-shifting regime in light of how they go about
rescinding actions against banks with AML problems in other contexts. For
instance, an entity designated by FinCen as a primary money laundering
concern may challenge the ruling, but it is incumbent on the entity to explain
why rescission or modification is warranted.142 FinCens has complete
discretion to subsequently modify or rescind its designations. Likewise, the
Office of the Comptroller of the Currency (OCC), which regulates national
banks, only terminates an enforcement actionincluding those based on
deficiencies in a banks AML regimesin the event that the target bank has
complied with all the requirements laid out in the action. The OCC makes
limited exceptions, such as in cases where a bank has complied with all of the
material requirements of the enforcement action or where the articles in
noncompliance have become outdated or irrelevant to the banks current
situation, but again this determination is entirely at the discretion of the
OCC.143
Finally, the United States should try to engage international expert bodies to
ensure the credibility of the underlying process for assessing the integrity of
Irans financial system. The Financial Action Task Force (FATF) is the most
natural candidate for spearheading the process. Established in 1989, FATF is
an inter-governmental policymaking body whose purpose is to establish
international standards and promote policies to combat money laundering and
the financing of terrorism. The FATF membership consists of the United
States and 36 other full members, plus nine regional bodies that serve as
associate members, 22 international organizations that serve as observer
organizations, and two observer states. While much of FATFs focus is on
monitoring legislative, financial and law enforcement activities at the national
level, FATF also has track record of working with the private sector. FATF
regularly provides guidance to banks on internal controls and risk management
and hosts an annual Private Sector Consultative Forum that brings together
financial practitioners from across the world.144 The international effort could
also be supplemented by the more aggressive monitoring of Iranian crossborder transactions, piggybacking off of an existing financial services platform
like SWIFT (the Brussels-based financial messaging network).145 This
142
31 C.F.R. 1010.716
Policies and Procedures Manual, Comptroller of the Currency Administrator of National
Banks (Sept. 9, 2011), http://www.occ.gov/static/publications/ppm-5310-3.pdf
144
See generally Guidance for a Risk-Based Approach: The Banking Sector, Financial
Action Task Force (Oct. 2014), http://www.fatf-gafi.org/media/fatf/documents/reports/RiskBased-Approach-Banking-Sector.pdf; Dialogue with the Private Sector, Financial Action
Task Force, http://www.fatf-gafi.org/publications/fatfrecommendations/documents/privatesector-apr-2016.html.
145
Juan Zarate has recently proposed a monitoring mechanism of this sort. See Juan Zarate,
Missiles and Corruption: The Risks of Economic Engagement with Iran, Statement before
143
42
[Vol. 4:2]
additional level of scrutiny could help alleviate the concerns of international

financial institutions regarding the risks involved in transacting with Iranian
banks. 146
Making a remediation program work may be difficult. Such a program would
require Iranian banks to expose their books to foreign bodies (something that
the Iranian government may not be fully on board with), while likely
committing the United States to some internationally scrutinizable process by
which to assess the integrity of banks (which may make some U.S.
policymakers queasy). But these same issues arise in the context of nuclear
inspections, which arguably implicate a more significant national security
interest for both inspected and inspecting countries. And yet the international
community for the most part accepts IAEA and U.N.-led nuclear examinations
as legitimate mechanisms. While policymakers should be mindful of the
potential risks and limitations associated with a financial remediation program,
they should not let those potentialities constrain them from considering a
solution that can help resolve a gap in the JCPOA that furthers the promise of
partial sanctions relief.
B. Looking Beyond the JCPOARationalizing Sanctions
Understanding the structural problems that underlie the United States
sanctions relief package is important not only for what those problems may say
about the viability of the JCPOA, but also because of their implications for
sanctions policy in general. Future targets of sanctions may differ from Iran in
substantial ways, but insofar as future adversaries pose a multiplicity of threats
and policymakers intend to deploy sanctions to counter those threats,
policymakers will have to be able to effectively disentangle sanctions that
address issues that have been worked out without undermining the rest of the
sanctions architecture.
The JCPOA offers a potential lesson regarding one design issuethe legal
articulation of a sanctions rationale. The meaninglessness of the nuclear/nonnuclear distinction is not a problem simply because the legal authorities
rescinded by the JCPOA lack a coherent rationale; the vast majority of
authorities under which the United States has imposed sanctions against Iran
have the same amorphous reasoning.147 When one reads the panoply of
statutes, executive orders, and designations that comprise the Iran sanctions
the House Committee on Foreign Affairs, 18 (May 12, 2016),
http://docs.house.gov/meetings/FA/FA00/20160512/104912/
HHRG-114-FA00-Wstate-ZarateJ-20160512.pdf.
146
Ibid.
147
For a convenient summary of the relevant authorities and their underlying rationale, see
Rennack, Iran: U.S. Economic Sanctions, Tables 1-4, 1-31.
2016]
43
regime, the approach of the government looks a lot like the strategy of an
aggressive prosecutor who seeks to secure a conviction by amassing as much
evidence as possible against a defendant. And if one sees the objective of
lawmakers as simply a matter of securing support from the public and other
lawmakers, the courtroom mentality makes sense: a kitchen-sink approach
listing all the reasons why a country ought to be sanctioned functions to
maximally justify the imposition of sanctions to the relevant judge and jury
(the American public in the case of the President plus enough lawmakers to
pass a statute in the case of Congress). But, as the experience of the JCPOA
demonstrates, the courtroom analogy does not fully reflect a core premise of
sanctionsnamely, that they can be unwound if the target country sufficiently
changes its behavior. A jumbled or confused rationale makes it harder for
policymakers to look to the underlying rationale of the authorities in
determiningand setting expectations as tothe amount of sanctions relief to
which a sanctioned country will be entitled by pursuing a particular course of
action. This is not just a matter of semantics; it means a lost opportunity for
policymakers to frame both domestic discussions and international negotiations
around the types of sanctions that ought to be within the scope of a particular
deal.
Thus, when formulating sanctions in the future, U.S. policymakers should
consider pivoting away from the prosecutorial approach they deployed in
justifying sanctions against Iran. Instead, policymakers should consider
rationalizing sanctions by predicating them in terms of limited, defined policy
grounds that focus on specific categories of business activity. Congress, which
has been very active in formulating sanctions policy in recent years, can play a
special role in instilling discipline in this process by coupling a statutory
sanctions defined rationale with a Presidential waiver power appropriately
tailored to that rationale. Such a waiver authority should clearly delineate the
steps a target country must take in order for sanctions to be lifted so as to
clarify the expectation of all parties as to which policy issues implicate which
sets of sanctions. This would be in contrast to the statutory sanctions targeting
Iran, which by and large include broad waiver provisions allowing the
President to cease applying sanctions when in furtherance of the national
security interest.148
Although there is an argument to be made that rationale-based waiver authority
may hamper executive flexibility in diplomatic negotiations, it may also
increase the overall leverage of the President by enabling a President to more
credibly ask for concessions. Rather than simply ask that an adversary engage
in a particular course of conduct before offering sanctions relief, a President
148
Two notable exceptions are the waiver requirements associated with waiving sanctions
related to CISADA and Irans status as a State Sponsor of Terror. The U.S. government has
not exercised these waiver requirements in connection with its sanctions commitment under
the JCPOA.
44
[Vol. 4:2]
can say that domestic law prohibits him from even considering waiving a
statutory sanction unless certain minimum actions are taken. Moreover, there
are ways in which lawmakers can work to mitigate the risk of inflexibility.
Depending on the particular issue at stake, policymakers can help strike the
right balance by articulating the minimum actions a sanctioned country ought
to take in terms of standards that generally define what the target country must
do to meet the threshold for a waiver, but give the President discretion in
determining what conduct actually satisfies this threshold.
Rationalizing sanctions in terms of clear and limited policy grounds would not
be entirely unprecedented. The European Union already formulates sanctions
by reference to specific rationales. In fact, in the case of Iran, the European
Union had in place a set of exclusively nuclear-related sanctions that defined
the scope of the E.U.s sanctions commitment under the JCPOA. Even the
United States sanctions against Russia (imposed in the aftermath of the 2014
Ukraine crisis) suggest the beginning of a re-orientation by American
policymakers. Rather than cite all of the potential threats posed by Russias
domestic and international behavior, the sanctions focus almost exclusively on
Russias actions in Ukraine. The Russia sanctions are also formulated as
Sectoral Sanctions, each of which target a particular industry, thereby
making it easier for policymakers to draw a line between the dismantling of a
particular sanction and the economic relief the sanctions target should
reasonably expect.149 Whether these sanctions are the perfect model for largerscale sanctions regimes is a question that policymakers ought to investigate in
depth, but at the very least they show that rationalizing sanctions is not a
practical impossibility.
V. CONCLUSION
By partially unwinding the sanctions regime against Iran, the United States has
sought to achieve two goals: provide Iran some meaningful level of economic
relief such that it carries through with its commitment to scale back its nuclear
program, while preserving its architecture of sanctions that target Iran for nonnuclear reasons. Barring any additional actions by policymakers, the
simultaneous achievement of these two goals is unlikely in light of the legal
distinctions on the basis of which the United States has unwound sanctions. In
the short- to medium-term, the United States can work to mitigate this problem
by proposing a financial remediation program whereby Iranian banks are given
the opportunity to verifiably demonstrate the integrity of their businesses
through international inspections.
Looking beyond the JCPOA, U.S.
policymakers should consider rationalizing sanctions by predicating them in
149
Press Release, U.S. Dept of Treasury, Announcement of Treasury Sanctions on Entities

Within the Financial Services and Energy Sectors of Russia, Against Arms or Related
Material Entities, and those Undermining Ukraines Sovereignty, (July 16, 2014),
https://www.treasury.gov/press-center/press-releases/Pages/jl2572.aspx.
2016]
45
terms of precisely defined policy grounds that focus on specific categories of

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* Sahand Moarefy is a former investment banker and management consultant. He has

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